Contract Formation in Bangladesh: Law and Practice

Abstract:
Contract formation is a crucial aspect of commercial transactions in Bangladesh, governed
primarily by the Contract Act of 1872. This assignment explores the legal framework and
practical aspects of contract formation in Bangladesh. It delves into the key elements of a valid
contract, including offer, acceptance, consideration, intention to create legal relations, and
capacity of parties. Additionally, the assignment examines common practices, challenges, and
legal remedies related to contract formation in Bangladesh, providing insights for businesses and
legal practitioners operating in the country.

Keywords: Contract formation, Bangladesh, Contract Act 1872, offer, acceptance, consideration,
intention to create legal relations, capacity, legal remedies.

1. Introduction:

1.1 Overview of Contract Formation:

Contracts form the cornerstone of commercial transactions in Bangladesh, providing legal
certainty and facilitating business relations. Contract formation involves the mutual agreement of
parties to enter into a legally binding arrangement, governed by applicable laws and regulations.
Understanding the legal framework and practical aspects of contract formation is essential for
businesses and legal practitioners operating in Bangladesh.

1.2 Objectives of the Assignment:

This assignment aims to provide an in-depth analysis of contract formation in Bangladesh,
examining the legal principles, common practices, challenges, and legal remedies associated with
contractual agreements. By exploring the Contract Act of 1872 and relevant case law, the
assignment seeks to elucidate the nuances of contract formation in the Bangladeshi context.

1.3 Methodology:
The assignment employs a combination of doctrinal research, case analysis, and practical
insights to explore contract formation in Bangladesh. Drawing on legal texts, statutes, judicial
decisions, and practical experiences, the assignment provides a comprehensive overview of the
legal framework and practical considerations relevant to contract formation.

2. Legal Framework of Contract Formation in Bangladesh:

2.1 Contract Act of 1872:

Contract formation in Bangladesh is primarily governed by the Contract Act of 1872, which
codifies the law relating to contracts and agreements. The Act defines essential elements of a
valid contract, including offer, acceptance, consideration, intention to create legal relations, and
capacity of parties. It provides a framework for the formation, interpretation, and enforcement of
contracts in Bangladesh.

2.2 Key Elements of a Valid Contract:

Under the Contract Act of 1872, a valid contract must satisfy certain essential elements,
including:
- Offer: An expression of willingness to enter into a contract on specified terms.
- Acceptance: Unconditional agreement to the terms of the offer.
- Consideration: Something of value exchanged between parties as part of the contract.
- Intention to Create Legal Relations: Mutual intent of parties to create legally binding
obligations.
- Capacity: Legal capacity of parties to enter into a contract, including competence and
consent.

2.3 Formation of Contractual Agreement:

Contractual agreements in Bangladesh may be formed orally, in writing, or by conduct, provided
they meet the essential requirements of a valid contract under the Contract Act of 1872. Parties
must demonstrate a clear intention to be bound by the terms of the agreement, and the contract
must not be void or voidable under the law.

3. Practical Aspects of Contract Formation in Bangladesh:

3.1 Offer and Acceptance:

In practice, offers may be made through various means, including written communications, oral
discussions, or conduct. Acceptance must be clear, unambiguous, and communicated to the
offeror. Silence or inaction generally does not constitute acceptance unless there is a pre-existing
contractual relationship or course of dealings between parties.

3.2 Consideration:
Consideration is a fundamental requirement for the validity of a contract in Bangladesh. It may
consist of a promise to do something, refrain from doing something, or the transfer of a benefit
or value. Courts in Bangladesh generally enforce contracts supported by valid consideration,
subject to certain exceptions.

3.3 Intention to Create Legal Relations:

The intention to create legal relations is presumed in commercial agreements but may be rebutted
in certain domestic or social arrangements. Parties must demonstrate a genuine intention to be
legally bound by the terms of the contract, supported by clear and unequivocal evidence.

3.4 Capacity of Parties:

Parties entering into contracts must have the legal capacity to do so, including being of sound
mind, of legal age, and not disqualified by law. Contracts entered into by minors, persons of
unsound mind, or those under duress or undue influence may be voidable or unenforceable under
the law.

4. Common Practices and Challenges in Contract Formation:

4.1 Cultural and Linguistic Differences:

Cultural and linguistic differences may pose challenges in contract negotiations and drafting,
particularly in cross-border transactions. Parties should ensure clarity and precision in
contractual terms, taking into account cultural sensitivities and differences in interpretation.

4.2 Contractual Disputes and Enforcement:

Contractual disputes are common in Bangladesh, often arising from issues such as breach of
contract, non-performance, or disagreement over contractual terms. Dispute resolution
mechanisms, including negotiation, mediation, arbitration, or litigation, may be employed to
resolve conflicts and enforce contractual rights.

4.3 Contractual Remedies and Damages:

Parties aggrieved by breach of contract may seek various remedies under Bangladeshi law,
including specific performance, injunction, or damages. Courts may award compensatory,
consequential, or punitive damages based on the nature and extent of the breach, subject to legal
principles and judicial discretion.

4.4 Regulatory Compliance and Legal Risks:

Businesses operating in Bangladesh must ensure compliance with applicable laws, regulations,
and contractual obligations to mitigate legal risks. Failure to adhere to regulatory requirements or
contractual commitments may result in penalties, sanctions, or legal liability.

5. Legal Remedies and Enforcement Mechanisms:

5.1 Judicial Enforcement of Contracts:

Contractual rights may be enforced through judicial proceedings before the civil courts of
Bangladesh. Parties may initiate legal action to enforce contractual obligations, seek specific
performance, or claim damages for breach of contract.

5.2 Alternative Dispute Resolution (ADR):

Alternative dispute resolution mechanisms, including arbitration, mediation, and conciliation,
offer alternative avenues for resolving contractual disputes outside the formal court system. ADR
procedures are often faster, more cost-effective, and less adversarial than traditional litigation,
providing parties with greater flexibility and control over the resolution process.

6. Conclusion:

Contract formation in Bangladesh is governed by the Contract Act of 1872, which sets out the
legal framework for the creation, interpretation, and enforcement of contracts. Understanding the
essential elements of a valid contract, including offer, acceptance, consideration, intention to
create legal relations, and capacity, is essential for businesses and legal practitioners operating in
Bangladesh.

Practical aspects of contract formation, including negotiation, drafting, and enforcement, require
careful attention to legal requirements, cultural sensitivities, and regulatory compliance. Parties
should be aware of common challenges, such as linguistic differences, contractual disputes, and
legal risks, and adopt appropriate strategies to mitigate them.

Legal remedies and enforcement mechanisms, including judicial proceedings and alternative
dispute resolution, offer avenues for resolving contractual disputes and enforcing contractual
rights. Parties should seek legal advice and assistance to navigate complex contractual
arrangements and protect their interests effectively in the Bangladeshi legal system.

In conclusion, contract formation in Bangladesh requires a thorough understanding of the legal

principles, practical considerations, and regulatory requirements governing contractual
agreements. By adhering to legal requirements, adopting best practices, and seeking appropriate
legal advice, parties can ensure the validity, enforceability, and effectiveness of their contractual
arrangements in Bangladesh.