CONTRACT AND AGENCY. Types of a consideration Three types: 1. Past, 2. Present, and 3. Future.

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1 CONTRACT AND AGENCY Contract An agreement enforceable by law is called a contract. Therefore in a contract, there must be 1. An agreement; 2. The agreement must be enforceable by law. There some agreements like an agreement to play cards or go to cinema, which cannot be enforced through the courts of law, are not contract. So agreements, which can't be enforced through the courts of law, aren't contract. Elements of a Contract 1. Offer & Acceptance; 2. Intention to create legal relationship; 3. Lawful consideration; 4. Capacity of the parties; 5. Free Consent; 6. Legality of the object; 7. Certainty; 8. Possibility of performance; 9. Void agreement; 10. Writing, registration and legal formalities. Acceptance & Proposal & Offer Proposal: 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. Offer: a proposal is also called an offer. The promisor or the person making of the offer is called offer. The person to whom the offer is made is called the offeree. Communication of proposal and acceptance complete The communication of the proposal is complete when it comes to the knowledge of the person to whom it is made. How and when a proposal and acceptance can be revoked? Revocation of Proposal When the following conditions are met individually or aggregate: 1. by notice; 2. by lapse of time; 3. after expiry of reasonable time; 4. by failure of reasonable time; 5. by failure of condition precedent; 6. by death of insanity; 7. counter offer; 8. by refusal. Revocation of Acceptance An acceptance can be revoked any time before the acceptance comes to the knowledge of the proposer but not afterwards. Consideration Consideration is an essential element in a contract. Something which receives and gives by each party to an agreement is called consideration. Types of a consideration Three types: 1. Past, 2. Present, and 3. Future. Page 1 of 40

2 Good consideration It must be: 1. Real 2. Reasonable; 3. Not illegal, immoral or opposed to public policy; 4. Present, past or future; Characteristics/Rules/Essential factors of Consideration 1. Desire; 2. Public duty; 3. Promise to stranger; 4. It must be real; 5. not illegal, immoral or opposed to public policy; 6. It may be present, past and future; 7. It may move from promisee or from other person. Why a consideration is needed? or In a formation of contract, consideration must be real but need not be adequate explain. 1. The consideration must have some value in the eye of law. It must not be sham or illusory 2. The impossible acts and illusory or non existing goods cannot support a contract. Therefore, real consideration comes from good consideration. 3. A contribution to charity is without consideration. Therefore, it is not real consideration. "No consideration no contract" exceptions to the rule. or Can a contract be made without consideration? Consideration is essential for validity of a contract. A promise without consideration cannot create a legal obligation. So consideration is essential for a contract. But there are exceptional cases where a contract is enforceable even though there is no consideration. They are as follows: 1. Natural love and affection; 2. Voluntary compensation; 3. Time bared debt; 4. Agency; 5. Completed gift. Silence be fraudulent? 1. Mere silence is not fraud. 2. Silence can be fraudulent in circumstances. 3. Silence is fraud where silence is in itself equivalent to speech. Void and Voidable contract Point of view Void Contract Voidable Contract Definition An agreement not enforceable by law is said to be void. An agreement which is enforceable by law at the opinion of one or more of the parties thereto, but not at all the opinion of the other or others is a voidable contract. Right and obligation A void agreement confers no right on any person and creates no obligations. But in case of voidable agreement the rights and obligations of the parties concerned are present unless it becomes void. Declaration for voiding Refund As a void agreement is void from the beginning it is not necessary for the effected party to declare the agreement void. In case of void agreement the party is not bound to refund the benefit received to other party. But in case of voidable agreement the effected party needs to call the agreement void. But in case of voidable agreement party may refund the benefit to the other party, if the agreement becomes void later on. Page 2 of 40

3 Contingent Contract vs. Wagering Agreement The distinctions between contingent contract and wagering agreement are given below: Point of view Contingent Contract Wagering agreement Validity A contingent contract is valid. A wagering agreement is void. Dependency It depends on the happening or non happening It is void. of an event, but the contract is valid. Reciprocal promises It may not contain reciprocal promises. It consists of certain reciprocal promises. Supervening impossibility When enter into contract it is good but subsequently impossible to perform. The condition is called supervening impossibility of contract. Frustration of contract by supervening impossibility When the common object of a contract can no longer be carried out, the court may declare the contract to be an end. This is known as the Doctrine of Frustration. Counter offer. Give an example. The acceptance shall be unconditional and absolute. If the acceptance is given with any condition changing any portion of the original offer then it is known as counter offer. Example: A offer to B to buy his car for Tk. 100,000 but B agrees to pay Tk. 90,000, the offer made by B is a counter offer. In which cases a Contract can void? Or When is an agreement said to be void? An agreement is said to be void because of mistake, lack of consideration, want of capacity etc. A list of reasons for void agreements is given below: 1. Lack of capacity; 2. Mutual mistake of fact; 3. Unlawful consideration or object; 4. Consideration or object partly 5. Agreements without consideration; 6. Agreements in restraint of trade; 7. Agreements is restraint of legal proceedings; 8. Uncertain agreement; 9. Agreements by way of wager; 10. Impossible acts; 11. Agreements contingent on impossible event; 12. Reciprocal promises where there are void promises. Indemnity vs. Guarantee Point of view Contract of Indemnity Guarantee Definition One party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. Parties Two parties. Three parties. Number of contract In a contract of indemnity it is necessary to have only one contract. In a contract of guarantee it is necessary to have three contracts. Sue In a contract of indemnity the indemnifier can sue only the indemnity holder for his loss. In a contract of guarantee the surety can proceed against principal debtor. Page 3 of 40

4 Express Contract An express contract is a legally binding agreement between two parties, where all the essential terms of the contract are explicitly stated, either orally or in writing. Implied Contract An implied contract is an agreement that is formed by nature of the contract or behavior of the parties, rather than through specific words. Quasi Contract A quasi contract is a contract that exists by order of a court, not by agreement of the parties. Courts create quasi contracts to avoid the unjust enrichment of a party in a dispute over payment for a good or service. In some cases a party who has suffered a loss in a business relationship may not be recover for the loss without evidence of a contract or some legally recognized agreement. To avoid this unjust result, courts create a fictitious agreement where no legally enforceable agreement exists. To illustrate, assume that a homebuilder has built a house on Alicia s property. However, the homebuilder signed a contract with Bobby, who claimed to be Alicia s agent but in fact, was not. Although there is no binding contract between Alicia and the homebuilder, most courts would allow the homebuilder to recover the cost of the services and materials from Alicia to avoid an unjust result. A court would accomplish this by creating a fictitious agreement between the homebuilder and Alicia and holding Alicia responsible for the cost of the builder s service and materials. Executed and Executory Contracts An executed contract is one in which nothing remains to be done by either party and where the transaction is completed at the moment that the agreement is made, as where an article is sold, and delivered, and payment therefore is made on the spot. A. Contracts to sell personal property are executory, while a completed sale by delivery is executed; but the language used in an agreement about the sale may not always be decisive whether the one or the other is meant. B. An executory contract is a contract to do some future act, such as where an agreement is made to build a house in six months, or to do an act on or before some future day, or to lend money upon a certain interest payable at a future time. C. Where the contract is executory, if the agreement be that one party shall do a certain act, or acts for the performance of which the other party shall pay a sum of money, the performance of the act is a condition precedent to the payment of the money. Bilateral Contract A bilateral contract is a reciprocal arrangement between two parties where each promises to perform an act in exchange for the other party s act. Each party is an (a person who is bound to another) to its own promise, and an oblige (a person to whom another is obligated or bound) on the other party s promise. A bilateral contract specifies a duty to act in exchange for another party s duty to act. Unilateral Contract A legally enforceable promise between legally competent party to do refrain from doing a specified, legal act or acts. In a unilateral contract, one party pays the other party to perform a certain duty. If the duty is fulfilled, the party on the other side of the contract is obligated to transfer the specified funds. Only this party is under obligation of the contract, whereas the acting party is not legally obliged to perform the duty. Valid Contract A contract that complies with all the essentials of a contract and is binding and enforceable with all associated parties. Page 4 of 40

5 Void Contract Contract that (i) is legally (inherently void) from the moment it is made, (ii) is legal but declared null (having no legal effect) by the courts because it violates a fundamental principle such as fairness, or is contrary to public policy, (iii) becomes void due to changes in law or in government policy, or (iv) has been fully performed. Lack of capacity to contract (being an infant or minor, intoxicated, or insane) automatically makes a contract void. Contract that is void only in one or few parts may be saved by the process of severance. Not to be confused with voidable contract. Voidable Contract Unlike a void contract, it is a valid contract. At most, one party to the contract is bound. The unbound party may repudiate the contract, at which time the contract is void. For example, depending upon jurisdiction, a minor has the right to repudiate certain contracts. Any contract with a minor is thus a voidable contract. If a minor were to enter into a contract with an adult, the adult would be bound by the contract, whereas the minor could choose to avoid performing the contract. Therefore, when entering into contracts with a minor, people often require the co signature of an adult, preferably a parent or legal guardian. Illegal Contract A contract that is prohibited by status (e.g. one between traders providing for minimum resale prices) or is illegal at common law on the grounds of public policy. An illegal contract is totally void, but neither party (unless innocent if the illegality) can recover back any money paid or property transferred under it. Related transactions may also be affected. A related transaction between the same parties (e.g. if X gives Y a promissory note for money due from him under an illegal contract) is equally tainted with the illegality and is therefore void. The same is true of a related transaction with a third party (e.g. if Z lends X the money to pay Y) if the original illegality is known to him. In certain circumstances, illegal contracts may be saved by severance. Unenforceable Contract It is a transaction is one that is valid, but which the court will not enforce. Uncorrectable is usually used in contradistinction to void (or void ab initio) and voidable. If the parties perform the agreement, it will be valid, but the court will not compel them if they do not. An example of a transaction which is an uncorrectable contract is a contract for prostitution under English Law. Prostitution is not actually a crime under English Law, although both soliciting a prostitute and living off the earnings of prostitution are criminal offences but so long as the contract is fully performed, it remains valid. However, if either refuses to complete the bargain (either the prostitution after being paid or the payer after receiving the services), the court will not assist the disappointed party. To impugn a contract means attacking the integrity of the contract. A way this can be done is by deeming the contract unenforceable. A contract can be said unenforceable when it goes against the statuses of fraud or the Statement of Goods Act. Distinguish between a contract and an agreement Factors Contract Agreement Definition. An agreement enforceable by law is contract. Promise or every set of promises forming the consideration for each other, is an agreement. Similarity All contracts are agreements All agreements are not contact. A offer a reward to whosoever shall return his lost briefcase. B returns the lost briefcase, not knowing of the advertisement reward. Is A bound to pay the reward to B? No, A is not bound to pay reward to B. As per contract act an offer must be communicated to the offeree. If the offeree does any act of acceptance without knowing. It will not crate any legal acceptance or agreement. What are the remedies for breach of contract? 1. Rescission of the contract. 2. Suit for damages. 3. Suit upon Quantum Meruit 4. Specific performance of the contract. 5. Injunction. Page 5 of 40

6 Ignorance of law is no excuse to avoid a contract" Discuss We all are working and exercising our right and obligation under the law. These laws are unlikely to be known to all of us. So, the ignorance of law is not a valid reason to avoid contract. In this case, contract should be performed specifically. Can a minor make a contract? As per section 11 of contract act a minor is not competent to a contract. So he/she cannot make a contract. If any contract is made by the minor, it will be a void agreement. Other important questions Short Notes 1. Express Contract 2. Implied Contract 3. Quasi Contract 4. Executed Contract) 5. Executory Contract 6. Bilateral Contract 7. Unilateral Contract Classification of Contract 1. Valid contract 2. Void contract 3. Voidable contract 4. Illegal contract 5. Unenforceable contract Rules regarding an offer 1. An offer may be express or may be implied from the circumstances; 2. An offer may be made to a definite person; to some definite class of persons; or to the world at large; 3. Legal relationship is required; 4. The terms of the offer must be certain, definite, unambiguous and not vague; 5. A mere statement of intension is not an offer; 6. An offer must be communicated to the offeree; 7. An offer may be conditional; 8. Printed contracts. Who can accept an offer? An offer can be accepted only by the person or persons for whom the offer is intended which includes the following: 1. An offer made to a particular person can only be accepted by him because he is the only person to accept. 2. An offer made to a class of persons can be accepted by any member of the class. 3. An offer made to the world at large can be accepted by any person whatsoever. How an offer to be communicated? An offer may be communicated to the offeree or offerees by word of mouth, by writing or by conduct. How an acceptance to be communicated? An acceptance to be communicated by the following: 1. Offer and Acceptance by post 2. Offer and acceptance through telephone 3. Microphone 4. E mail 5. Internet Is a promise to make a contribution to charity enforceable by law? No, a promise to make to charity is not enforceable because it is without consideration. Page 6 of 40

7 Can a person who is not a party to a contract sue it? A stranger to a contract, i.e., one who is not a party to it cannot file s suite to enforce it. A contract between P and Q cannot be enforced by R. But a stranger to the consideration can sue to enforce it provided he is a party to the contract. A contract between P, Q and R whereby P pays money to Q for delivering goods to R can be enforced by R although he did not pay any part of the consideration. Rules regarding acceptance of an offer The acceptance of an offer to be legally effective must satisfy the following requirements: 1. It must be an absolute and unqualified acceptance of all the terms of the offer. 2. Conditional acceptance / Counter offer. 3. Contract subject to condition 4. Clarification 5. the acceptance must be expressed in some usual or reasonable manner 6. Mental acceptance or un communicated assent does not result in a contract 7. The mode of acceptance 8. Time of acceptance 9. When acceptance is complete 10. Before offer 11. The acceptance must be made while the offer is in force. What are the exceptions to sue upon a person who is not a party/a stranger to a contract? There are certain exceptions to the rule that a stranger to the contract cannot sue upon it. They are as follows: 1. Beneficiaries in the case of trust 2. Provision of marriage settlement of Minor 3. Family settlement 4. Acknowledgement or Estoppel What are the rights and liabilities of a stranger? With the exception of the above cases, a contract cannot confer rights upon a person who is not a party to it. Also a contract cannot impose a liability upon a person who not a party to it. What are the rights and liabilities of a stranger? With the exception of the above cases, a contract cannot confer rights upon a person who is not a party to it. Also a contract cannot impose a liability upon a person who not a party to it. What are types of agreements said to be void? The following agreements are void from the beginning: 1. An agreement made by a minor; 2. Agreements without consideration; 3. Certain agreements against public policy. What types of agreements become void? An agreement, which was legal and enforceable when it was entered into, may subsequently become void due to impossibility of performance, change of law or other reasons. When it becomes void the agreement ceases to have legal effect. What types of agreements are expressly declared void? There are certain agreements, which are expressly declared to be void, are summarized hereunder: 1. Every agreement in restraint of marriage of any person, other than a minor, is void 2. Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void 3. Private individuals cannot by agreement alter or vary their personal law or the statute law 4. Agreements, the meaning of which is not certain, or capable of being made certain, are void 5. Agreement by way of wager are void 6. Agreements to do and act impossible in itself are void 7. Agreements whose objects or considerations are unlawful are void Page 7 of 40

8 What types of agreements are unenforceable by law? An agreement which cannot be enforced in a court of law, one or both of the parties, because of some technical defect, e.g. want of registration or non payment of the requisite stamp duty is unenforceable e by law. What is meant by illegal agreement? An illegal agreement is one, which is against a law in force. Distinct between void agreement and illegal agreement Subject Void agreement Illegal Agreement Definition An agreement not enforceable by law is An illegal agreement is one, which is said to be void.. against a law in force. Nature A void agreement is not necessarily illegal. An illegal agreement is also void What do you mean by capacity? Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. Under which circumstances a person is incapable of entering into contracts? A person is incapable of entering into contracts under the following circumstances: 1. if he is not attained the age of majority according to the law to which he is subject 2. if he is not of sound mind 3. if he is disqualified from contracting by and any law to which he is subject. Who is a minor? A minor is one who has not completed his or her 18 th year of age. What are the exceptions regarding the rules to minor? To the minor's rule there are two exceptions which are given below: 1. When a guardian of the minor s person or property is appointed by a court of law and 2. When a minor s property is taken over by the Court of Wards for management. In either case minority continues up to the completion of the 21st year. What do you mean by Sound Mind? 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 forming a rational judgment as to it effect upon his interests. In which case, an unsound mind may make a contact? A person who is usually of unsound mind, but occasionally of sound mind may make a contract when he is of sound mind. What is the test of soundness of mind? The test of soundness of mind is given hereunder: 1. Capacity to understand the business concerned 2. Ability to form a rational judgment How may the unsoundness of mind arise? Unsoundness of mind arise from 1. insanity or lunacy 2. idiocy 3. drunkenness 4. similar factors Page 8 of 40

9 What are the effects of agreements made by persons of unsound mind? The effects of agreements made by persons of unsound mind are describing hereunder: 1. Agreements made by a person of unsound mind are void 2. But agreements for supply of necessaries for unsound himself or for persons whom he is sound to support is valid as quasi contracts. What do you mean by Idiocy? Idiocy is a congenital defect caused by lack of development of the brain. The term idiot is applied to a person whose mental powers are completely damaged. What do you mean by Lunacy or Insanity? A lunatic is one whose mental powers are absent so that he cannot form a rational judgment on any subject. What do you mean by Aliens? An alien means a citizen of foreign state. Contracts with alien are valid. In which situation consent is not free? The consent is not free if it is caused by 1. Coercion 2. Undue Influence 3. Fraud 4. Misrepresentation 5. Mistake What do you mean by Coercion? Coercion is the committing or threatening to commit, any act forbidden by penal Code, or unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever with the intention of causing any person to enter into an agreement. What are the consequences of coercion? The consequences of coercion are given below: 1. Voidable at the option of the party whose consent was so caused 2. The aggrieved party can have the contract set aside or he can refuse to perform it and take the defense of coercion if the other party sought to enforce it. 3. The aggrieved party may if he so desires abide by the contract and insist on its performance by the other party. What do you mean by undue influence? A contract is said to be induced by undue influence where 1. One of the parties is in position to dominate the will of the other. 2. He uses the position to obtain an unfair advantage over the other. What is the presumption to exist undue influence? Undue influence may be presumed to exist in the following cases: 1. Real or apparent authority or fiduciary relationship stands 2. Contract makes with a mentally incapable person What do you mean fiduciary relationship? Fiduciary relationship means a relationship of mutual trust and confidence. Such a relationship is supposed to exist in the following cases: 1. father and son 2. guardian and ward 3. solicitor and client 4. doctor and patient 5. preceptor and disciple 6. trustee and beneficiary Page 9 of 40

10 How is an undue influence suspected? An undue influence is suspected in the following cases: 1. Inadequacy of consideration 2. Fiduciary relationship 3. Inequality between the parties as regard age, intelligence, social status etc. 4. Absence of independent advisors for the weaker party 5. Unconscionable bargains What are the difference between undue influence and coercion? Undue influence The influence arises from the domination of the will of one person over another. Undue influence is mental pressure Coercion The influence arises from committing or threatening to commit punishable offence or detaining or threatening to detain property unlawfully. Coercion is mostly cases of the use of physical force. What do you mean by misrepresentation? Misrepresentation arises when the representation made in inaccurate but the inaccuracy is not to any desire to defraud the other party. There is no intension to deceive. What are the causes of misrepresentation? The causes of misrepresentation are 1. Unwarranted assertion 2. Breach of duty 3. Innocent mistake What are the consequences of misrepresentation? The consequences of misrepresentation are 1. The aggrieved party can avoid the agreement 2. The aggrieved party can insist that the contract be performed and he shall be put in the position is which he would have been if the representation made had been true. What is fraud? The term fraud includes all acts committed by a person with a view to deceive another person. To deceive means to induce a man to believe a thing is true which is false. What type of acts to be considered as fraud? 1. False statement 2. Active concealment 3. Intentional non performance 4. Deception 5. Fraudulent act or omission What are the consequences of fraud? A party who has been induced to enter into an agreement by fraud has the following remedies open to him: 1. Avoidance of performance of the contract 2. Insistence of performance of the contract 3. Sue for damage How can the relief for fraud be obtained? Relief for fraud can be obtained only if the following conditions are satisfied: 1. Act committed by a party or agent 2. Act must have been done with the intension to deceive and must actually deceive. 3. Consent obtained by the act complained of Silence 4. The remedy of rescinding not available Page 10 of 40

11 What are the difference between fraud and misrepresentation? Factors Fraud Misrepresentation 1. Intension Here implies an intension to deceive No intension to deceive 2. Belief Statement is dishonest. Statement id honest though it is wrong. 3. Sue for damages The aggrieved party can sue for damages The aggrieved party can't sue for any damage. What is meant by the Uberrimae fidei contracts? Uberrimae fidei contracts are contracts where law imposes upon the parties the duty of making a full disclosure of all material facts. What type of contract come within the class of Uberrimae fidei contracts? The following types of contract come within the class of Uberrimae fidei: 1. Contracts of Insurance 2. Fiduciary relationship 3. Contracts for the sale of immovable property 4. Allotment of shares of companies 5. Family settlement What do you mean by mistake? An erroneous belief concerning something is called mistake. How many classes of mistakes? 1. Mistake of law 2. Mistake as to a law not in force in Bangladesh. 3. Mistake of fact What is meant by bilateral mistake? When both the parties of the contract mistake are called bilateral mistakes. What is meant by unilateral mistake? When one of the parties of the contract mistakes is called unilateral mistakes. What are the rules regarding mistake? 1. Mistake of law 2. Mistake of fact 3. Opinion 4. Unilateral mistake When are the consideration and the object of an agreement unlawful? The consideration and the object of an agreement are unlawful in the following cases: 1. If it is forbidden by law. 2. If it is of such a nature that, if permitted, it would defeat the provision of any law. 3. If it is fraudulent. 4. If it involves or implies injury to the person or property of another. 5. If the court regards it as immoral. 6. If the court regards it as opposed to public policy. Page 11 of 40

12 Which are the agreements said to be against public policy? The following agreements have been held to be against public policy: 1. Trading with enemy. 2. Agreements interfering with the course of justice. 3. Traffic in public offices. 4. Agreement creating an interest opposed to duty. 5. Agreement restraining personal freedom. 6. Agreements interfering with parental duties. 7. Agreements interfering with marital duties. 8. Marriage brokerage agreements. What do you mean by wager? A wager is an agreement by which money is payable by one person to another on the happening or non happening of a future, uncertain event. What are the characteristics of a wager agreement? The characteristics of a wager agreement are given below: 1. The consideration for the promise under a wagering agreement is to pay or get money. 2. The money is payable on the happening or the non happening of an event. 3. The agreement depends on a future and uncertain event. 4. The essence of gaming and wagering is that one party is to win and the other loses. 5. In wagering agreement no party has control over the event. 6. Commercial transactions are valid, but to pay price differences in a wagering agreement is void. Which are the transactions not wagers? a) Shares. b) Games of skill. c) A statutory exception. d) Contract of Insurance. e) Badla. What do you mean by contingent contract? A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. What are the characteristics of contingent contracts? 1. The performance of such contract depends on a contingency, i.e., on the happening or non happening of the future event. 2. The event must be collateral i.e., incidental to the contract. 3. The contingency is uncertain. What are the methods of termination of a contract? 1. By performance of the promise or tender. 2. By mutual consent canceling the agreement or substitute in a new agreement in place of the old. 3. By subsequent impossibility of performance. 4. By lapse of time. 5. By material alteration without the consent of the other parties. 6. By breach made by other parties. What do you mean by accord and satisfaction? Accord means the promise to accept less than what is due under the old contract. Satisfaction means the payment or the fulfillment of the smaller obligation. What is the doctrine of frustration? When the common object of a contract can no longer be carried out, the court may declare the contract to at an end. This is known as Doctrine of Frustration. Page 12 of 40

13 What are the grounds of frustration? Supervening impossibility may occur in many ways, some of which are explained below: 1. Destruction of an object. 2. Change of law. 3. Failure of precondition. 4. Death or incapacity of personal services. 5. Outbreak of war. What are the types of supervening impossibility? There are types of supervening impossibility: 1. Post contractual impossibility 2. Pre contractual impossibility What are the exceptions of the principle of supervening impossibility? Some points are given below of cases which do not come within the principal of supervening impossibility 1. Difficulty of performances. 2. Commercial impossibility. 3. Strikes, lock outs, civil disturbances and riots. 4. Failure of one of the objects. What are the effects of supervening impossibility? When the performance of contract becomes subsequently impossible or illegal, the contract becomes void. When does a contract terminate by law? A contract terminates by operation of law in case of the following cases: 1. By death 2. By insolvency 3. By merger How may the breach of contract arise? Breach of contract may arise in two ways: 1. By anticipatory breach. 2. By actual breach / present breach. What are the types of damages? 1. Compensatory damages. 2. Special damages. 3. Nominal/ Contemptuous damages. 4. Exemplary, Punitive or Vindictive damages. What do you mean by Quantum Meruit? Quantum Meruit means as much is merited. A person can, under certain circumstances, claim payment for work done or goods supplied without any contract and in cases where the original contract has terminated by breach of contract by one party or has become void for some reason. This is known as Doctrine of Quantum Meruit. Describe the cases which are to be deemed to be Quasi Contract. The cases which are to be deemed to be Quasi Contract are describing below: 1. Necessaries for incapable person. 2. Reimbursement of interested person. 3. Benefit of non gratuitous act. 4. Finder of goods. 5. Delivery by mistake or under coercion. What do you mean by contract of indemnity? A contract of indemnity is a contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Page 13 of 40

14 What are the characteristics of contracts of indemnity? The characteristics of contracts of indemnity are given hereunder: 1. A contract of guarantee must satisfy all the essential elements of a contract. 2. The contract may be expressed or implied. What are the rights of the indemnity holder? 1. All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. 2. All costs which he may be compelled to pay in such suits. 3. All sums which he may have paid upon compromise of such suit. What do you mean by contracts of guarantee? A contract to perform the promise or discharge the liability, of a third person in case of his default. How many types of contracts of guarantee? 1. For payment to the creditor to the principal debt or by the guarantor. 2. Payment of price for goods sold. 3. Fidelity guarantee. What are the essentials of valid guarantee? 1. Must satisfy all the essential elements of a contract. 2. May be oral or written. 3. There must be three parties. 4. The primary liability is that of principal debtor. 5. Minor 6. Consideration Which are the invalid contracts of guarantee? 1. Misrepresentation. 2. Concealment. 3. Lack of essential elements. What do you mean by Continuing Guarantee? A guarantee which extends to a series of transaction is called continuing guarantee. How is a continuing guarantee revoked? 1. By notice of revocation by the surety. 2. By the death of the surety. What do you mean by Bailment? A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed of according to the direction of the person delivering them. Who are bailor, bailee? Bailor: The person delivering the goods is called the bailor. Bailee: The person to whom they are delivered is called the bailee. Bailment: The transaction is called Bailment. What are the characteristics of Bailment? The characteristics of Bailment are given below: 1. Delivery. 2. Purpose 3. Return. 4. Contract. 5. Movable goods. 6. Possession. Page 14 of 40

15 What are the kinds of Bailment? 1. Gratuitous Bailment: A gratuitous bailment is one in which neither the bailor, nor the bailee is entitled to remuneration. 2. Bailment for reward: A bailment for reward is one where either the bailor or the bailee is entitled to remuneration. What are the duties of the Bailee? The duties of the Bailee are given below: 1. Duty of reasonable care. 2. Unauthorized use of goods. 3. Mixture of Bailor s goods with the Bailee s. 4. Duty of returning goods. 5. Accretion to the goods bailed. 6. Liabilities of Innkeeper and Hotelkeepers. 7. Liabilities of carrier. What are the duties of the Bailor? The duties of the Bailor are given below: 1. Bailor s duty to disclose faults in goods bailed; 2. Payment of expenses in Gratuitous Bailment; 3. Responsibility for breach of warranty of title; 4. Enforceable of rights; 5. Act inconsistent with the terms; 6. Restoration of goods lent gratuitously. What are the rights and duties of finder of goods? 1. Possession. 2. Compensation and Lien. 3. Reward. 4. Sale. What are the duties and obligations of finder of goods? 1. He must take reasonable care of the goods. 2. He must not mix the finder s goods with his own goods. 3. The goods must be returned to the real owner. 4. If there is an accretion to the goods found, it must be given to the real owner. 5. He must not use the goods for his purpose. 6. He must try to find out the true owner of the goods. When does a Bailment terminate? 1. Lapse of time; 2. Fulfillment of purpose; 3. Act inconsistent with the term; 4. Goods lent gratuitously; 5. Death. What do you mean by Pledge or Pawn? The bailment of goods as security of payment of a debt or performance of a promise is called Pledge or Pawn. What are the difference between Bailment and Pledge? The difference between pledge and other kind of bailment lies in the purpose or objectives of the transaction. 1. The purpose of a pledge is to provide security for a debtor or the performance of a promise. But in case of bailment there are other purposes for example repair, safe custody. 2. Pledge is a particular kind of bailment. Page 15 of 40

16 When can a non owner make a valid Pledge? 1. Mercantile Agent. 2. Possession under a voidable contract. 3. Pawnor with a limited interest. 4. Possession with co owner. What are the rights of the Pledge or Pawnee? 1. Right of Retainer. 2. Retainer of subsequent advance. 3. Extraordinary expenses. 4. Pawnee s right where pawnor makes default. What are the rights of Pledgor? 1. Defaulting pawnor s right to redeem. 2. Preservation and maintenance. 3. Protection of debtor What do you mean by Agent, Principal and Agency? Agent: Principal: Agency: An agent is a person employed to do any act for another or to represent another in dealings with third person. The person for whom such act is done or who is so represented is called the principal. The relationship is called Agency. What are the differences between agent and servant? The differences between agent and servant are given below: Subject Agent Servant Authority An agent is to exercise his authority in A servant has to act according accordance with the principal s instructions to the orders of the master in every particular Relationship An agent is appointed and employed to bring A servant cannot do that the principal into contractual relationship with third parties Binding An agent can bind the principal to the third parties A servant cannot do so Remuneration The mode of remuneration of an agent may vary, including a commission on the basis of the work done A servant is generally paid through wages Number of principal An agent may work for several principals Services for only one What are the differences between Agent and Bailee? Subject Bailee Agent Possession The bailee has possession of goods of the bailor An agent may not have possession of any goods or property of the principal Relationship The bailee has no power to create any An agent has that authority. contractual relationship with the third party Act on behalf Under certain circumstances a bailee may act as an agent An agent can't. What are the different classes of Agents? 1. Broker. 2. Factor. 3. A Commission Agent. 4. Auctioneer. 5. A Del credere 5 Agent. Page 16 of 40

17 What are the methods of creating Agency? 1. Agency by Express Agreement. 2. Agency by Implied Agreement. 3. Agency by Estoppel or by Holding Out. 4. Agency of Necessity. 5. Agency by Ratification. Is a wife an agent of her husband? Or, Can a wife bind her husband? A wife is an agent of necessity, having power to pledge her husband's credit for necessaries of life, when she is not properly provided for him or when she has been deserted by the husband. But if the husband gives her a sufficient allowance, she has no authority to pledge his credit and can never be the agent of necessity. What do you mean by Sub agent? An agent appointed by an agent is called a sub agent. A sub agent is a person employed by, and acting under the control of, the original agent in the business of agency. What are the exceptions regarding the appointment of an agent by an agent? 1. When it is permitted by the custom, of the trade with which the agency is concerned. 2. When it is necessary because of the nature of the agency. How does an agency terminate? Termination by act of parties. Termination by operation of law. Efflux of time. Performance of the object. Determination of subject matter. Death or insanity of the principal or agent. Insolvency of the principal. What are the duties of agents to the Principals? Agent s duty in conducting principals business. Skill and diligence required from agent. Agent s duty to render accounts. Agent s duty to communicate to principal. Agent s not to deal on his own account. Principal to get benefit of agent s dealings. Agent s duty to pay sums received for principal. Principal s death or insanity. Miscellaneous. What are the duties of principals to agents? Agent to be indemnified against consequences of lawful acts. Agent to be indemnified against consequences of acts done in good faith. Compensation for principal s neglect. Page 17 of 40

18 Scope 1. Sale of property/transfer of property 2. Agreement to sell/transfer 3. Movable property Background Sale of Goods Act Provision relating to sale of goods was previously covered by British Contract Act Then incorporating British Sale of G Act Then it was revised as S of G Act In Bangladesh it was adopted in Definition Delivery: willingly / voluntary transfer of possession from one to another. Delivery state: such state that the buyer under the contract be bound to take the delivery Goods: moveable property; stock & shares. Goods may be classified as under: Existing goods: which are physically present specified or unascertained Future goods: which will be produced after making contract Contingent goods: the owner of the goods is not a party of the contract. Say Salam agreed to sell a cycle to Kalam provided Salam is able to purchase it from Rahim. This is an agreement for the sale of contingent goods (Section: 4) Sale: A contract whereby the seller transfers or agrees to transfer the goods to the buyer for a price Either transfer of property, or Agree to transfer Agreement to Sell: Where the transfer of property is to take place at a future time or subject to some conditions it is called Agreement to Sell. An agreement to sell becomes a sale when Prescribed time has elapsed or The stipulated conditions has been fulfilled Sale vs. agreement to sale Definition: same as above Risk: Risk prima facie passes with property. Where there is a sell subsequent losses falls on the buyer, but not in the case of agreement to sell. Possession / title: In case of sell property passes to the buyer but in the case of agreement to sell it remains with seller. Essential elements: Two parties: a sale is a bilateral contract i.e., buyer and seller must be separate person. In an exceptional case a partner may sell goods to his firm and the film may sell goods to partner. The parties of the contract must be competent. Movable goods: the act deals only with movable goods excepting actionable claims and money. An exchange of goods is not a sale, but it exchange is made partly for goods and party for money it would be considered as sale. Page 18 of 40

19 Formation of a contract: the contract may provide for immediate delivery of goods or immediate payment of price or both, or for the delivery and payment by installments. A contract of sale may be writing, verbal, or may be implied from the conduct of the parties. Terms of contract: essentials terms are called conditions and non essentials terms are called warranties. Other essential elements: the contract must be based on free consent, appropriate consideration and the object must be lawful. (Section: 05) how contract is made: offer agreement (Section: 06) subject matter of contract existing or future goods (Section: 07 & 08) contract is void, if 1. Goods unknown to seller 2. Goods have perished or damaged 3. Happening of any event that damages the goods between the times of agreement. to sell and sale (Section: 09) price consideration Condition and warranty (S 11 12) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to right to treat the contract as repudiated. It also creates of right to get damages. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. Consequence of breach of condition and warranty: answer as above Breach of condition to be treated as a breach of warranty: (S 13) Where contract is not servable and the buyer has accepted the goods or part thereof Goods or property has lost/missing/damaged Implied condition: Condition to title, getting possession Sale by description supplied goods shall be in accordance with mentioned specification By sample supplied goods shall agree with provided sample Quality & fitness Implied warranty: Buyer shall have quiet possession Goods are free from any charge/encumbrance The doctrine (principle) of Caveat Emptor Caveat Emptor is a Latin expression which means buyers beware. The doctrine of caveat emptor means that, ordinarily, a buyer must buy goods after satisfying himself of their quality and fitness. If he makes a bad choice he cannot blame the seller. The rules probably originated at a time when goods were mostly sold in market overt (open) and the buyer had to depend upon own skill and judgment. Exceptions: 1. Where the buyer relies upon the skill and judgment of the seller. 2. Where by custom an implied condition of fitness is annexed to a contract of sale (say, juice in the container should be kept with merchantable quality) 3. Where there is a sale of goods by description there is an implied condition that the goods are fit for sale. 4. Where the seller is guilty of fraud the seller is not protected by the doctrine of caveat. Page 19 of 40

20 Passing /transferring property: 1. No property passes to the buyer until & unless the goods are ascertained; (S 18) Case study: an agreement to sell 50 tones out of a large quantity of rice in a godown does not make the buyer the owner of anything. He can become owner of 50 tons of rice only after this quantity of rice has been separated out from the other rice in the godown. 2. If parties intend to make delivery at a future time, it passes when time come/elapsed/over; (S 19) 3. Unconditional contract for specified goods at delivered state, it passes when contract is made. In such a case payment of prices is not essential (S 20) 4. when there is a condition to met; seller has to do something; has to ensure certain specification, i.e. weight, measure, test etc; property does not pass until the act is done, specification is met. (S 21, 22). 5. When goods are delivered on sale or return term, goods pass when 6. Buyer signifies approval/acceptance 7. Retains goods without rejection up to fixed or reasonable time ( S 24) 8. In case of payment through bill of exchange goods not passes until instrument is accepted. (S 25) Passing risk (S 26) RISK PRIMA FACIE PASSES WITH THE PROPERTY Risk generally passes with the property; that means goods remains at seller s risk till property is passed; after passing it is at buyer s risk. Exception: delivery has been delayed by default of Buyer or Seller; risk is of the party in default. Transfer to Title (S 27, 28) No seller of goods can give the buyer of goods a better title than himself has Discuss MAKIM NEMO DAT QUOD NON HABET The general rule is that only the owner of goods can sell the goods. No one can convey to a transferee a better title than he himself has. Exception: in the following cases, a person who is not an owner can give to the transferee a valid title to the goods. Estoppel: Under certain circumstances the true owner may be prevented, by his conduct, from denying the seller s authority to sell. X is the owner of certain goods. X acts in such a manner that Y is induced to believe that the goods belongs to Z. On that belief Y buys the goods from Z. Under these circumstances, the court will not allow X to prove this ownership. Sale by a mercantile agent: Sale of goods by a mercantile agent gives goods title to the purchase even in cases where the agent acts beyond his authority. Sale by one of the several joint owners: If one of several joint owners of goods has the sole possession of them by permission of them permission of the coowners, the property in the goods is transferred to any person who buys them from such joint owner provided the buyer acts in good faith and without notice that the seller had no authority to sell. Sale of goods obtained under a voidable agreement: When the seller has obtained possession thereof under a voidable agreement has not been rescinded at the time of sale, the buyer obtains a good title of the goods, provided he buys in good faith and without notice of the seller s defect of the title. Seller in possession after sale: When a person having sold goods, continues in possession there of transfer further by way of sale, pledge or other disposition will pass good title to the second transferee. Page 20 of 40