Chapter 1

The Essential Elements of Contract

 Essential Elements of a Contract
 law of contract is the most important part of commercial law
 as every commercial transaction starts from an agreement
between two or more persons
 Object and Scope

Object and Scope

the law of contract deals with agreements which can be

enforced through court of law

most important part of commercial law

commercial transaction starts from an agreement between

two or more persons
 What is a Contract?
“an agreement creating and defining obligations between the
parties” according to Salmond.

“A contract is an agreement creating and defining obligations

between parties, by which rights are acquired by one or more
to acts or forbearances on the part of the other of others ”.
 Contract

The object of the Law is to

introduce definiteness in
commercial and other transactions
X enters into a contract to deliver 10 tons of coal of Y on a
certain date. Since such a contract is enforceable by the
courts, Y can plan his activities on the basis of getting the
coal on the fixed date. If the contract is broken, Y will get
damages from the court and will not suffer any loss.
 Law of Limitation
 legal action has a time limit
 3 years
 this law can make contracts unenforceable
 The Essential elements of a
contract
 Offer and Acceptance
 Intention to create legal relationship
 lawful consideration
 Capacity of parties
 free consent
 legality of the object
 certainty
 possibility of performance
 Void agreements
 offer and acceptance
 lawful offer and lawful acceptance by other party
 “Lawful” implies the offer and the acceptance must conform
to the rules laid down in the contract act
 Intention to create legal
relationship
 must be an “intention” (among parties) to create legal
relationship
 dinner?
 buy sell goods?
 marriage?
 Lawful Consideration
 Consideration= Something given or obtained
 an agreement is legally enforceable only when each of the
parties to it gives something and gets something
 Capacity of Parties
 must be legally capable of entering into agreement
 lunacy, idiocy, drunkenness, similar things
 Free Consent
 agreement must have free consent to be enforceable
 consent is absent if induced by coercion, undue influence,
mistake, misrepresentation and fraud
 Legality of Object
 object for which agreement was made must be legal
 not immoral
 or opposed to public policy
 Certainty
 agreement must not be vague
 meaning must be clear or it cannot be enforced
 Possibility of Performance
 agreement must be capable of being performed
 should not be something impossible
 Void Agreements
 agreement made must not be clearly declared void
 Five categories of agreements
declared void
 agreement in restrain to marriage
 agreement in restrain of trade
 agreement having restrain of proceedings
 agreements having uncertain meaning
 wagering agreement
 Remember
 all elements must be present
 every contract is an agreement but all agreements are not
contracts
 legal obligations are enforced by the courts
 Classification
 contracts are classified into four broad divisions
 the method of formation of a contract
 the time of its performance
 its parties
 its legality or validity
Types of Contract
 Method of formation

 Express contract (spoken or written)

 Implied contract
 Quasi contract (Physician and sick person)
 Time
 Executed contract
 Executory contract
Executory Contract: A contract that will come into effect in
the future. Eg: (ABC corp takes X as a manager from June.
The contract is made in May and it will be available from
June).

Executed Contract: contracts where parties perform their

obligations immediately. Eg:

Void ab initio: Contains no legal consideration or validity,

parties are mistaken from the initial (at the beginning) offer
 Parties of the Contract
 Bilateral contract (two parties)
 Unilateral contract (one party has to full-fill obligation, other
party already performed)
Offer and Acceptance
 Formation of Contract
 all contracts are made by the process of a lawful offer by one
party and lawful acceptance by another
 Proposal
 an “offer” involves making of a “proposal”
 proposal offered to another for acceptance can be withdrawn
anytime before acceptance
 a person signifying willingness to do or stop from doing
anything
 Offer
 a proposal is also called an offer
 the person making the offer is called offeror
 Promise and Acceptance
 when a person to whom proposal is made gives approval, the
proposal is said to be accepted
 a proposal when accepted becomes a promise
 the person making the proposal is called the “promisor”, the
person accepting the proposal is called the promisee”
 Examples
 Specific offer: X offers to sell his motor car to Y at a price of
tk 5000. This is a proposal. X is the promisor or the offeror.
If Y agrees to buy the car at the price stated; Y becomes the
promisee or the acceptor
 Eg 2
 Specific offer: P puts up a notice offering to pay a reward of
Tk 5, to any student who finds out and returns a book lost in
college. What happens next?
 is there a contract?
 is there a and offer by someone and is there a acceptor?
 Eg 3
 General offer: a transport company runs tramway cars along
the streets. This is an offer made by the company to carry
passengers at the scheduled fares.
 The offer is accepted when a passenger gets up on a tram
with the intention of becoming a passenger
 Effect of Offer And Acceptance
 Offer alone and acceptance alone are “inaction” or
“powerless”
 If separate they cannot lead to the formation of a contract
 Therefore
 offer + acceptance leads to a contract
 provided the essential elements of contract exist
Compare offer and acceptance to:
 “gunpowder and lighted match” by Anson
 materials in a gun powder (sulphur, iron fillings, etc) will not
explode by themselves
 lighted match is needed for the explosion to occur
 Offer
 Rules regarding offer
 (A) express or implied
 1. by words, spoken or written (Express offer)
 2. by conduct (Implied offer)
 (B) an offer may be made to a person; to some definite class
of persons or the world at large (eg: heirs to property, all
those affected by something )
 (C) Legal relationship required: the offer must be one which
is capable of creating a legal relationship
 (D) The terms of the offer must be certain, definite,
unambiguous, and not vague: Jalil says to Borsha: I will give
you some money if you marry Sakib.
 is it an offer which can be accepted?
 (E) A mere statement of intention is not an offer: there is a
difference between an “offer” and “a statement of intention”
 eg: price lists, catalogues, and customer enquiries are merely
statements of intention
 (F) An offer must be communicated to the offeree. Eg: if you offer
a reward (1000 tk) to anyone who finds your lost dog, some one
who finds it and bring it to you with out knowing the offer.
 contract or no? Fitch v. Snedaker
 Rule (E) example
 (a) intention to sell (price label) (Fisher v. Bell)
 (b) quotation of prices (price quotation)
 (c) advertisements
 (d) catalogue (Bank of Travancore v. Dhirt Ram)
 (c) time-table (train)
 (d) question and reply (lowest price for pen, Harvey v. Facey)
 (e) auction (for sale does not mean they will actually be put up on
auction)
 (G) An offer may be conditional (subject to conditions,
conditions must be clearly communicated)
subject to conditions
1. Strict enforcement
2. No reasonable notice
3. Against public interest
4. Unreasonable
 Conditions of offer
 Strict enforcement: X agreed to buy goods from Y and
signed an order form given by Y containing a number of
clauses in small print with out reading them.
 Strict enforcement: if you cannot read and take a service
(transportation)
 No reasonable notice: R booked a ship ticket and received a
ticket in a way that no writing was visible
 on the ticket conditions were printed in small fonts (limited
liability of 100 tk)
 small writing did not draw attention: NOT GIVING
REASONABLE ATTENTION
 hence R was not bound by the conditions
 Against public interest: terms which would discourage
factors that act against public interest Eg: Microsoft and
monopoly
 to act in public interest mean to do something that is
beneficial to public
 Unreasonable: If Band box pays 8% of the price of a piece of
clothing of yours that they lose, is the offer reasonable?
 H. Printed contracts
 contains a large number of terms and conditions
 life insurance contract
 exploitive
 Acceptance
 Who can accept?
 only the person or persons for whom offer is intended
 X sold his business to Y, with out disclosing the fact to his
customers
 Z sent an order for goods to X by name
 Y received it and sent a letter of acceptance
 was there a contract between Y and Z?
 Rules regarding acceptance
 1. It must be an absolute and unqualified acceptance of all
the terms of the offer
 if there is any variation, even an unimportant one between
the terms of the offer and the terms of the acceptance, there
is no contract
 Example
 Abdul offered land to Kuddus at tk 100000. Kuddus replied
accepting and enclosing tk 40000, and promising to pay the
remaining balance by monthly installments of Tk 10000.
 was there a contract?
 was there a unqualified acceptance?
 Rules continued…
 Conditional acceptance: acceptance with a variation is no
acceptance, it is a counter proposal
 X offered to sell his house for tk 5 lacs, Y said “accepted for
tk 4 lacs”.
 this is not an acceptance but a counter offer or counter
proposal
 3. Contracts subject to condition: cases where rights and
obligations may be dependent up on the happening of a
particular event
 4. Clarification: The seeking of clarification does not amount
to the acceptance of an offer or making a counter offer.
 5. The acceptance must be expressed in some usual or
reasonable manner: the offeree may accept express his
acceptance by word of mouth, telephone, telegram or by post
(the usual methods)
 rule 5, Examples
 (a) oral or by writing
 (b) conduct : a widow invited her niece to stay with her in her
residence and promised to give her a particular property. The
niece stayed at her residence till her death.
 Held (verdict): she was entitled to the property
 6. Mental acceptance or un-communicated assent does not
result in a contract: no contract is formed if offeree remains
silent or does nothing to show that she has accepted the offer.
 6. Example
 you accept an offer from someone to buy your laptop
 you forget to inform the offeror of your acceptance
 insurance proposal: acceptance is complete only when it is
communicated to the offeror (silence or receipt or retention)
 7. The mode of acceptance: where the promisor specifies a
particular mode of acceptance
 Example: “acceptance to be sent by telegram”
 8. Time of acceptance: if the offeror prescribes a time the
acceptance must be done with in that time
 9. acceptance must be made while the offer is valid
 Communication of Offer and
Acceptance
 how is an offer communicated?
by word of mouth
by writing
or by conduct
 how is an acceptance
communicated?
 offer and acceptance by post
 offer and acceptance by telephone
 microphone
 Options
 option: is a conditional contract to do something
 Rahim owns a house, agrees in consideration of tk 1 lac, to
give Karim an option to buy the house anytime within 6
months
 Standing contracts and open
proposals
 contracts for supply of goods over time
 worded such that the buyer has an option as regards the
quantity to be purchased and on the time of purchase
 Example
 Y, signed a tender addressed to IUB to supply goods
 accepted by IUB say
 contract comes into existence when a definite quantity is
ordered
 Revocation
 When does an offer lapse and is no longer open to acceptance
?
 It happens under the following
circumstances
 by notice
 by lapse of time
 after expiry of reasonable time
 by failure of a condition precedent
 by death or insanity
 counter offer
 by refusal
 by notice
 expressly withdraws the offer
 the offer comes to an end
 but acceptance must be communicated
 eg: a proposal can be revoked before the letter of acceptance
is posted
By lapse of time
 by failure of a condition
precedent
 offer lapses by the failure of the acceptor to fulfill a condition
precedent to acceptance, where such a condition has been
given
 eg: Twinkle says to Akshay “We will get married if you stay
in Uk”.
by death or insanity
 Counter offer
 an offer lapses by counter offer
 By refusal
 a proposal once refused is dead and cannot be revived
 A wants to sell his watch to B for 500 tk
 B replies offering to pay 400 tk
 A refuses
 B writes accepting original offer
 contract??
 Revocation of Acceptance
 Section 5 of the Contract Act
 provides that an acceptance can be revoked (put an end to)
any time before the acceptance comes to the knowledge of
the proposer
 but not afterwards
 Example
 Mofiz proposes, by a letter sent by post, to sell his house to
Nosimul.
 Nosimul accepts the proposal by a letter sent by post
 Nosimul may revoke his acceptance anytime before the letter
reaches Mofiz
 not afterwards
 Under English law you cannot withdraw once offer is in
course of communication
Conclusion