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Contracts
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Mominur Rahman

 
By Mominur Rahman
Published on 16 October 2006
 
Definition of Contract, cases and example, requirement of contract, disqualification, competent, kinds of contract, Formal and simple contracts, express contracts and implied contracts, executed contracts and executory contracts, bilateral and unilateral contract, voidable contract, essentials of a valid contract.

Contracts
The security and stability of a business world are depend upon the law of contract indeed the basis of trade and commerce today is the enforce ability of promises In business transactions, where promises are very often made at one time and the performance is to follow later there should be a legally enforceable obligation to perform the agreements. Legally enforceable promises are termed contracts.

DEFINITION

Literally:
The world contract comes from a Latin word “Contractus” Contractus means consent, agreement or to enter into an agreement with a particular subject.

Formal agreement between two people and groups states etc.

Traditionally:
“The agreement which is enforceable by saw is a contract”
Ex, Sumon says to Mamun, “Will you buy my house for Tk.50000?” This is an offer. If Mamun says “Yes”, the offer is accepted and a contract is formed.

Case,Where A purchase property from B and the sale is fictitious A can not recover B money paid by him to save the property from being sold in execution of a decrease against B. Janki Prasid Singh v. Baldeo Prasad,(1908) All.167.

Salmond
A contract is “an agreement creating and defining obligation between the parties”

Sir William Anson
“A contract is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to acts or forbearances on the part of the other or others”

A contract is an agreement or convenient made between two or more persons by which one or some of the parties acquire legal rights to have the other parties do or to forbear to do certain acts. A contract is an agreement and without consent there is no agreement of the parties.

1.    Professor Carbin defines a contract as “The legal relation between persons arising from voluntary expression of intention and including at least one right in perform actual or potential with it's ’corresponding duty”. Article an “Offer and acceptance and some of the resulting legal relations” (26 Yale Law January, 169).

A contract is an agreement between two or more persons for the violation of which a court of law will give damages. There are many agreements for the breaking of which no damages can be held, either because the agreement can templates no legal relations or because it ends in a relation that is not enforceable in a court of law.
 
Example: Tapash and Polash mutually agree that they will meet each other at a certain place and go to a football game together. Polash failed to keep his promise. This is not a contract, because the agreement contemplates social not legal relation.

Sumon in a spirit of fun offers in writing to purchase for Tk500000 Arif’s old and dilapidated automobile, which is not more than Tk10000, and Arif jokingly accepts the offer. Should Arif attempts to collect the money by filing suit the court would hold there is no intention to create a legal obligation on the part of either of the parties. Hence no damages would be awarded.     

An agreement enforceable by law is a contract.[Section-2 (8)]

The word agreement has been defined as “every promise every set of promises forming the consideration for each other”[Section-2 (5)]

The world promise has been defined as “a proposal when it is accepted”
[Section-2 (2)]

And “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”[Section-2 (1)]

Thus for the formation of a contract it is necessary that one party makes a proposal and accepts it.

CONTRACTS REQUIRED TO BE MADE IN WRITING
The following contract must be in writing:

1. An agreement may be made without consideration if it is expressed in writing and registered and is made on account of natural love and affection between parties standing in a near relation to each other.[Section-25 (1)]

2. If an agreement is to pay a debt of which the creditor might have enforced payment by for the law for the limitation of suits, it must be made in writing and should be signed by the person to be charged with.[Section-25 (3)]

3. The memorandum of association and the articles of association of a company incorporated under the companies act, 1913, must be made in writing.[Section-9 (Company Act, 1913)]

4. Any contract made by a company must be in writing[Section-88 (Companies Act,1913)]

5. A sale, [Section-54 (Companies Act,1913)]. A mortgage, [Section-59 (Transfer of Property Act)].  A lease, [Section-123 (Transfer of Property Act)]. And a gift,[Section-123 (Transfer of Property Act)] of the immovable property must be made in writing.

6. A trust must be created in writing.[Section-6 (Trust Act)]

7. An agreement in the form of an acknowledgement to save the law of limitation is required to be made in writing.[Section-19 (Limitation Act)]

8. An agreement to refer a dispute to arbitration must be made in writing.[Section-2 (Arbitration Act)]

Who are not competent to contract
Under section 11 of the Contract Act, there are two kinds of disqualification:

(a)    Disqualified of infancy, and
(b)    Disqualification by insanity.

Infancy: Section 3 Majority Act, 1875, declares that every person shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before. In the case however, of a minor of whose person or property or both a guardian has been appointed by a Court, or of whose property the superintendence is assumed by a Court of Wards, before the minor has attained the age of eighteen years, the Act provides that the age of majority shall be deemed to have been attained on the minor completing his age of twenty-one years. Minor’s personal law would apply if the majority age thereunder were different.

An agreement entered in to by a minor is invalid.

Illustration
A minor entered in to a mortgage and the money was advanced to him by the money lender. It was held that the mortgage was void and the money lender who had advanced money to a minor on the security of the mortgage is not entitled to repayment of the money under section 64and65 on a decree being made declaring the mortgage invalid. Mohori Bibee v. Dhurnodas Ghose, (1903) 30 Cal.539:L.R.30.I.A.114.

A guardian can make an enforceable contract of marriage for a minor (48 Bim.573, dupts.) but a Muslim widow is not competent to make a partnership contract for her minor children. A.Khorajsaway v. C.Acha,(1928) 6 Rang. 98.

The court may award compensation to the other party against the minor if the latter obtained the contract through fraudulent representation (Mohori Bibee’s case supra) but a contract will not be allowed to be converted in to tourt. Leslie v. Sheill, (1914) 3 K.B.607.

A minor can not be stopped by a false representation as to hia age, for, there is no estoppels against statute. Sadiq Ali Khan v. Joi Kishore. (1928) 109.I.C. 387.  

Sale in favour of minors. A dully executed transfer by way of sale (Munni Koer v. Madan Gopal 1916) 38 All 52 Munia v. Perumal (1911) 37 Mad. 390. Or mortgage(Raghava Chariar v. Srinivasa 1917) 40 Mad..308(F.B) Madhab Roeri v. Baikuntha Karmakar (1919) 4 Pat. I.J. 582. Zafar Ahsan v. Zubaida Khatum (1929) 27 All.L.J.1114. in favour of a minor who has paid the consideration money is not void, and it is enforceable by him.

Necessaries. Section 68 provides for liability in respect of necessaries supplied to a person incapable of entering in to a contract. A minor is a person incapable of contracting within the meaning of that section, (Walkins v. Dhunnoo Baboo, 1881) 7.Cal 140,143) and therefore the provisions of that section apply to his case. Thus if a minor is supplied necessaries by a person, that person must be reimbursed from minor’s property.

Examples of Necessaries.       

(a)    Costs incurred in successfully defending a suit on be half of a minor in which his property was in jeopardy are, “necessaries”.Watkins v. Dhunnoo Baboo,(1881) 7,Cal,140.

(b)    Cost incurred in defending a minor in a prosecution. Sham Charan Mal v. Ch. Dedya Singh, (1894) 21, Cal. 872.

(c)    A loan to a minor to save his property from sale in execution of a decree. Kidar Nath v. Ajudhia(1883)Punj.Rec.No.185.

(d)    Money advanced to minor to meet his marriage expenses. Rahima Bidi v.Sherfuddin,(1947) Mad.541.

Insanity. A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests. As to evidence of unsound mind see Ram Sundar Saha v.Raj Kumar Sen(1928)55Cal.285.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Illustration
(a)    A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.

(b)    A sane man, who is delirious from fever who is so drunk that he can not understand the terms of a contract or form a rational judgement as to its effect on his interest, can not contract whilst such delirium or drunkenness lasts.

KINDS OF CONTRACT
Contracts may be classified in terms of their form, or in terms of their enforceability, or the way they are created.

Formal and simple contracts:

Contracts are classified in terms of their form as (1) contracts under seal (2) contracts of records, and (3) simple or parol contracts.

The first two classes are known as formal contracts, their validity or legal force being based upon form alone. An obligation imposed by the judgement of a court and entered upon its records is often called a contract of record.All contracts other than contracts of record and contracts under seal are called simple or parol contracts, whether oral or in writing, must be supported by consideration.

A formal contract specially of English law, and is enforceable, if it satisfies four conditions, namely,
   
(1)    The contract must be in writing.
(2)    It must be registered according to the law of registration of document.
(3)    It must be between parties standing in near relation to each other.
(4)    It should be proceed out of natural love and affection between the parties.
 
Express and implied contracts

Simple contracts may be classified in terms of the way in which they are created as (1) express contracts and (2) implied contracts.

Express contracts: Express contracts is one in which the parties have made an oral or written declaration of their intentions and of the terms of the condition. In other words, an express contract is one, the terms of which are stated in words, spoken or written.

Implied contract: Implied contract is one in which the evidence of the agreement is not shown by words, written or spoken, but by acts and conduct of the parties An implied contract can not arise when there is an existing express contract on the same object

Under certain conditions the law creates and enforces legal rights and obligations when no real contract, express or implied exists. These obligations are known as quasi contracts. A quasi or constructive contracts rests upon the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another. In truth however it is not a contract at all. Duty and a promise or agreement or intention of the person sought to be charged, defines it.  

Valid Contract:
A valid contract is an agreement which is binding and enforceable. It has all the essential elements to be stated and discussed later.

Voidable Contract:
A voidable contract is an agreement that is binding and enforceable but, because of the lack of one or more of the essentials of valid contract, it may be repudiated by the aggrieved party at his option. If the party having the right to avoid his obligation does not exercise the right within a reasonable time, the agreement is binding and enforceable.

A Void Contract:
A void contract is not really a contract at all. The term means an agreement which is without any legal effect. Thus an agreement by a minor is void under the Indian law.


An Unenforceable Contract:
An unenforceable contract is one which, though perfecyly valid iv all other respects, lacks some technical requrement needed ti make it enforceable,e.g,some necessary evidence. Such a contract will not be enforced by the court unless until the defect is rectified. Thus contracts for the sale of land or any interest therein must be evidence in writing, signed by the defendant, before they can be the subject of a successful action at law.

But such enforceable contracts are not void, and therefore if they have been performed and property has been transferred to the court will not intervene to set the agreement aside. Thus, if A really agrees to buy B’s house and payes a deposit to B, then latter changes his mind and refuses to sign a written contract to purchase the house, B will be unable to sue A for damages or performance of the contract but will be able to keep A’s deposit, and the court will not assist A to recover it.

Executed and Executory Contract:

Contracts can be classified in terms of the extent to which they have been perform or carried out as (1) Executed contracts and (2) Executory contracts.

Executed contract is one that has been completely performed. A contract may be executed at once, (i.e, at the time the contract is made), as in the case of a cash sale, or it may be become executed in the future bt it’s terms being carried out in due time.

An executory contract is composed of undertakings in which one or both parties under an obligation to do or not to do certain things. In other words, under the terms of the contract something remains to be done. For example, if an electric supply company agrees to furnish electricity to another party for a specified period of time at a stipulated price, the contract is executory. If the entire price is paid in advance, the contract is still deemed executory on the other.

Bilateral and Unilateral Contract :

An agreement may originated in one of the several ways. First, there may be an offer of a promise and a simple assent. This is possible only when the promise is under seal or of record. This way or mode of making contract is applicable in English law and not in Indian law. Second way in which there may be an offer of an act for a promise, as when a public omnibus by running on it’s route makes an offer of it’s services for the promise of the one entering to pay his face. Third there may be an offer of a promise for an act, as one promises to pay a specified sum for the performance of an act, such as the returning of lost goods. Fourth, an agreement may originated in an offer of promise for a promise, as when one person offers to pay Rs.100 in return for the promise of another to paint his car. The first three methods result in Unilateral contracts, because in each instance there is an obligation to perform on the part of only one party. The fourth or last method creates a Bilateral contract, in that there is an obligation on the part of both to do or to refrain from doing a particular thing. In the case of a unilateral or one sided contract, one party to the contract has performed his part even at the time of it’s formation and an obligation is outstanding only against the other. In the bilateral or two-sided contract, at the time of it’s formation there are two outstanding obligations, one on either party to the contract, e.g., A promises to paint a picture in one month in return for which B promises to pay Rs.100. Here, there are two promises and each party is a promisor in respect of one promise and a promise in respect of the other, and as such each can hold the other liable for the breach of his promise.

Essentials of a Valid Contract
In order to be an enforceable contract, there must be
 
1.    An agreement
2.    Based upon the genuine assent of the parties
3.    Supported by consideration.
4.    Made for a lawful object.
5.    Between competent parties.

These requirements of valid contract may be analyzed into the following elements, all of which must be present:

1.    Proposal or offer by one party and acceptance of the proposal or offer by another party, resulting in an agreement- consensus ad-idem.

2.    An intention to create legal relationship or an intent to have legal consequences.

3.    Genuine, (i.e. free and real) consent between the parties (i.e. not marred by mistake, undue influence, coercion, fraud or misrepresentation).

4.    The parties to the contract are capable of contracting.

5.    The object contracted for is legal and is not opposed to public policy.

6.    There are at least two persons to make the contract.

7.    The agreement is supported by lawful consideration (or, under English law proper form is used).

8.    The agreement is capable of  being perform.

9.    The terms of the contract are certain.

Contracts arise under a wide variety of circumstances. They may arise from face to face conversation or from conversations by telephone, from the exchange of letters or telegrams or by any other means of communication. When the contract is part of a common business transaction, a printed form is often used. In such a case, all that is usually necessary to complete the contract is to add the date, the names of the parties, the price, the particular performance or commodity which is the subject matter of the contract, and signatures of the parties. Familiar types of standard contract forms are leases and the various forms used for the installment purchase of motor vehicles, refrigerators, radio sets etc. Some times the contract must comply with certain standards. For example, the may require particular contract to be in writing, such as an arbitration agreement.