The Law of Contract

Q.No.01:

What is contract?

Ans. to the Q.No.01:

Section 2 (h) of the Bangladesh Contract Act Provides that “An agreement enforceable by law is a contract “

Therefore in a contract there must be –

1. An agreement and
2. The agreement must be enforceable by law.
   
   
   “Every promise and every set of promises, forming the consideration for each other , is an agreement.”
   
   
   Q.No.02:
   What are the essential elements of a contract?
   
   
   Ans. to the Q.No.02:
   An agreement becomes enforceable by law when it fulfils certain conditions. These conditions, Which may be called the essential elements of a contract, are explained below:

1. Offer and acceptance
2. Intention to create legal relationship
3. Lawful consideration
4. Capacity of parties
5. Free Consent
6. Legality of the Object
7. Certainty
8. Possibility of performance
9. Void agreements
10. Writing, Registration and legal formalities.
    The elements mentioned above must all be present if any one of them is absent, the agreement does not become a contract.
    An agreement which fulfils all the essential elements is enforceable by law and is called a contract.
    From this it follows that,
    “Every contract is an agreement but all agreements are not contracts.”
    
    
    Q.No.03:
    Define the classification of contract.
    
    
    Ans. to the Q.No.03:
    In the law of contract certain terms are used indicating their meaning .The terms also show that contracts can be classified in to four broad divisions ,Namely-

1. The method of formation of a contract,
2. The time of its performance
3. Its parties  and
4. Its legality or validity
   
   
   Method of formation-

1. Express contract
2. Implied Contract
3. Quasi Contract
   The time of performance-

1. Executed contract
2. Executory Contract
   The parties of the contract-

1. Bilateral Contracts
2. Unilateral Contracts

Legality or validity of the contract-

1. Valid Contract
2. Void Contract
3. Voidable Contract
4. Illegal Contract
5. Unenforceable Contract

Q.No.04:

What do you mean by termination of contract? Discuss the various ways by which a contract may be terminated.

Ans. to the Q.No.04:

When the obligations created by contract come to an end, the contract is said to be discharged or terminated. A Contract may be discharged or terminated in any of the following ways:

1. By performance of the promise or tender
2. By mutual consent cancelling the agreement or substituting a new agreement in place of the old.
3. By Subsequent impossibility of performance.
4. By operation of law-e.g. Death, Insilvency or merger.
5. By lapse of time
6. By material alteration without the consent of the other parties.
7. By breach made by one party.

Q.No.05:

The rule of termination of contracts

Ans. to the Q.No.05:

The rules regarding termination of contracts-

1. Termination by performance the obligations of a party to a contract come to an end when he performs his promise
2. Termination by mutual agreement, Tender
   
   
   
   

Q.No.06:

What do you mean by the “Frustration of contract “?

Ans. to the Q.No.06:

The doctrine of frustration-

When the common object of a contract can no longer be carried out, the court may declare the contract to be at an end.

This is known as the doctrine of frustration.

Anson says,

Most legal systems make provision for the discharge of a contract where subsequent to its formation a charge of circumstances’ renders the contract legally or physically impossible of performance.”

Lord lore burn says,

“The doctrine of frustration is only a special case of the discharge of contract by and impossibility of performance arising after the contract was made.”

Q.No.07:

Causes of frustration

Ans. to the Q.No.07:

Later on many exceptions to the Doctrine of Frustrations were made and on various grounds .The court gave relief to aggrieved persons.

In the following cases in to English courts accepted that the contract came in to and end:

1. Destruction of an object;
2. Change of law
3. Failure of pre-Conditions
4. Death or personal incapacity and
5. Outbreak of war
   
   

Exceptions:

Some illustrations are given below cases which do not come in the principle of supervening impossibility.

1. Difficulty of performance
2. Commercial impossibility
3. Tricks ,Lock-Outs, Civil disturbances and riots
4. Failure of one of the objects.

Q.No.08:

Describe the basis of the Doctrine of Frustration.

Ans. to the Q.No.08:

In English court various theories have been put forward at different times as to the basis of discharges of contracts by frustration.

The theories are summarized briefly-

1. The implied terms
2. Disappearance of the foundation of the contract
3. The just and reasonable solution
4. Change in the obligation
   
   
   Or

1. Hypothesized condition
2. Destruction of the essential subject of contract
3. Occurrence of conditional event
4. alteration of condition.

Q.No.09:

Limits of application of “Doctrine of Frustration”.

Ans. to the Q.No.09:

In English law there are certain limits of the Doctrine of Frustration.

1. If the frustration is self –induced by the party (e.g. negligent acts) the contract is not frustrated.
2. The frustrating event should defeat common intention of the parties.
   There cannot be frustration on one side only.

Q.No.10:

Effects of Doctrine of Frustration.

Ans. to the Q.No.10:

In English law Frustration procedures the following effects.

1. The contract terminates automatically and immediately it is void and not voidable only.
2. All future obligations are discharged
3. Some reliefs have been given in England by the law reform (Frustrated Contract Act-1943)
   
   
   Summarized:

• Rejection of Contracts
• Ending the Future obligation
• Remedies

Q.No.11:

What do you mean by breach of contract.

Ans. to the Q.No.11:

When a contract is broken by one party, the other party or parties are freed from the obligation of performing the contract .They can also take the remedial measures to which they are entitled.

Breach of contract create two was –

1. Breach of contract by promisor
2. Breach of contract by promise

Breach of contract may arise in two was :

1. By anticipatory breach
2. By actual breach or present breach.

Q.No.12:

Consequences of anticipatory Breach of contract.

Ans. to the Q.No.12:

When anticipatory breach occurs, the aggrieved party can take the following steps :

• Resolved the liability of performance
• Claim of legal remedies
• Refuse the breach of contract.

Q.No.13:

Remedies of breach of contract

Ans. to the Q.No.13:

When a breach of contract occurs, the aggrieved party of the injured party becomes entitled to the following reliefs:

1. Rescission of the contract
2. Suit for damages

• Compensatory damages
• Special damages
• Nominal damages ,contemptuous damages
• Exemplary ,punitive or vindictive damage

1. Suit upon Quantum merit
2. Specific performance of the contract
3. Injunction

Q.No.14:

Distinction between a contract of indemnity and contract of guarantee.

Ans. to the Q.No.14:

Basis	Contract of indemnity	Contract of guarantee
No. of Parties	There are two parties indemnifiers and the indemnity –holder	There are three parties principal debtor, creditor and surety.
No. of Contracts	There is only one contract between indemnifiers and indemnity holder	There are three contracts ,one between creditor and principal debtor, second between surety and principal debtor , and third between surely and the creditor.
Undertaking	The indemnifier undertakes to some the indemnity holder from any loss	The surely undertakes for the payment of debts of principal debtors
Nature of liability	The liability of indemnifier is primary and unconditional	The liability of surely is secondary and conditional. Surely liability secondary in the sense that the primary liability is of principal debtor. Surety’s liability is conditional in the sense that it arise only on default of principal debtor.
Nature of event	The liability arise only on the happening of a contingency	The liability arises only on the non-performance of an existing promise or non-payment of an existing debt.
Request	The indemnifier not act at the request of indemnity –holder	The surety acts at the request of the principal debtor
Right to sue	The indemnifier cannot sue a third party in his own name because of absence of privities of contract between him and a third party. He can sue the third party in his own name if there in an assignment in his favour.	A surety on discharging the debt of principal debtor, can sue the principal debtor in his own name.

Q.No.15:

What do you mean contract of guarantee?

Ans. to the Q.No.15:

A contract of guarantee is a contract to perform a promise or discharge the liabilities of a third person in case of his default.

Parties to a contract of guarantee:

There are three parties to a contract of guarantee principle debtor, creditor and surety.

1. Principal debtor (Section 126 ) the person in respect of whose default the guarantee is given is called the “ principal debtor “.
2. Creditor [Section 126 ] the person to whom the guarantee is given , is called the” creditor “.
3. Surety [Section 126] the person who give the guarantee is called the “ Surety “.
   
   

Q.No.16:

Essential features of a contract of guarantee.

Ans. to the Q.No.16:

The essential features of a contract of guarantee are shown below-

1. Tripartite agreement
2. Consent of three parties
3. Existence of a liability
4. Essentials of a valid contract
5. Guarantee not to be obtained by misrepresentation
6. Guarantee not to be obtained by concealment