“An agreement is regarded as a contract when it is enforceable by law”

1) Introduction:

A contract is a legally enforceable agreement between two or more parties with mutual obligations. The remedy at law for breach of contract is “damages” or monetary compensation. In equity, the remedy can be specific performance of the contract or an injunction. Both remedies award the damaged party the “benefit of the bargain” or expectation damages, which are greater than mere reliance damages, as in promissory estoppels[1].

If jurisdiction in the case is in personal or quasi in ram (over a person or property or a debt owed by a person), the court may not exercise that jurisdiction unless the defendant has “minimum contacts” with the state in which the court sits (the forum state). Generally, the requirement of minimum contacts means that the defendant has to have taken actions that were purposefully directed towards the forum state. Such actions may include, among others, selling goods in the state, being incorporated in the state, visiting the state, or bringing property in the state. In order to exercise jurisdiction, such minimum contacts are required by the defendant’s Fourteenth Amendment federal constitutional right to due process. Even if the defendant’s minimum contacts with the forum state are found to exist, the court will not exercise jurisdiction if considerations of “fair play and substantial justice” would require making the defendant defend in the forum state so unreasonable as to constitute a due process violation.[2]

Minimum contacts can consist of either some type of systematic and continuous contact with the forum (“general jurisdiction”), or isolated or occasional contacts purposefully directed toward the forum (“specific jurisdiction”). A single contact can suffice to establish personal jurisdiction, but where jurisdiction is based on a single contact, the nature and quality of the contact is determinative. The principal test of foresee ability in a due process analysis “is that the defendant’s conduct and connection with the forum state are such that he should reasonably anticipate the possibility of defending a suit in the forum. A defendant cannot reasonably anticipate out-of-state litigation unless he has purposefully availed himself “of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.[3]

Contract Act 1872 (Act No. IX of 1872) governs the law of contracts in Bangladesh. The Act came into force in Bengal on 1 September of 1872, and was adopted in Bangladesh without change. It contains the common rules relating to contracts and differentiates them. The Act has 238 sections under its 11 chapters. It begins with the preliminary aspects, including a short preamble and title, extent and date of commencement and interpretation of words and expressions used in the act.

2)   Offer and acceptance:

The most important feature of a contract is that one party makes an offer for an arrangement that another accepts. This can be called a concurrence of wills or consensus ad idem (meeting of the minds) of two or more parties. The concept is somewhat contested.[4] The obvious objection is that a court cannot read minds and the existence or otherwise of agreement is judged objectively, with only limited room for questioning subjective intention: see Richard Austen-Baker has suggested that the perpetuation of the idea of ‘meeting of minds’ may come from a misunderstanding of the Latin term ‘consensus ad idem’, which actually means ‘agreement to the [same] thing’.[4] There must be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, [5]and a contract will be formed when the parties have met such a requirement. An objective perspective means that it is only necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person, not that they actually did want to form a contract.[6]

The case of Cargill v Carbolic Smoke Ball Company is an example of a ‘unilateral contract‘. Obligations are only imposed upon one party upon acceptance by performance of a condition . In the United States,[7] the general rule is that in “case of doubt, an offer is interpreted as inviting the offered to accept either by promising to perform what the offer requests or by rendering the performance, as the offered chooses.”[8]

Offer and acceptance does not always need to be expressed orally or in writing. An implied contract is one in which some of the terms are not expressed in words. This can take two forms. A contract which is implied in fact is one in which the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, by going to a doctor for a checkup, a patient agrees that he will pay a fair price for the service. If one refuses to pay after being examined, the patient has breached a contract implied in fact. A contract which is implied in law is also called a quasi-contract, because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. For example, a plumber accidentally installs a sprinkler system in the lawn of the wrong house. The owner of the house had learned the previous day that his neighbor was getting new sprinklers. That morning, he sees the plumber installing them in his lawn. Pleased at the mistake, he says nothing, and then refuses to pay when the plumber delivers the bill. Will the man be held liable for payment? Yes, if it could be proven that the man knew that the sprinklers were being installed mistakenly, the court would make him pay because of a quasi-contract. If that knowledge could not be proven, he would not be liable. Such a claim is also referred to as “quantum merit“.

3) Types of Contracts in Business Law:

3.1) Express Contracts

In this type of contract, the parties to the contract state the terms and conditions either by word of mouth or in writing, at the time of forming the contract.[9] A definite written or oral proposal of the contract is accepted by an offeree in a way that explicitly defines legal consent to the terms of the contract.

3.2) Implied Contracts

Contracts implied in fact and contracts implied in law are both a part of implied contracts. But a real implied contract consists of certain obligations that arise from a mutual agreement and intention of promise, which is not expressed verbally. An implied contract cannot be labelled as implied in law because such a contract lacks the requirements of a true contract. The term “Quasi Contract“, is however, a more specific identification of contracts implied in law. Implied contracts depend on the reason behind their existence.[10] Thus, for an implied contract to develop, there must be some transaction, act or conduct of a party in order for them to be legally bound. A contract will not be implied if there are any chances of harm or inequity. If there is no clarity of communication, implication and understanding between the two parties, the court will not conclude any contractual relationship between the two parties. If the parties continue to follow their contractual terms, even after the contract has ceased to exist, an assumption arises that the two parties have mutually agreed to a new contract that has same provisions as the old contract and a new implied contract is formed.

3.3) Executed Contracts

An executed contract is termed as an agreement in which no other transaction is left out to be executed by either party. This definition could be incorrect to a certain extent, since completion of work will mean that the contract has ended. But in case of executed contracts, there exists some act/transaction or an obligation that has to be performed at some point of time in the future according to the contractual terms.[11]

3.4) Bilateral and Unilateral Contracts

If two entities exchange a mutual and reciprocal promise that implicates the execution of an act, an obligation or a transaction or forbearance from execution of an act or an obligation, with respect to every party involved in the contract, is termed as bilateral contract in the language of law. It is also called a two-sided contract because of the two-way promises made by parties involved in the contract.[12]

A unilateral contract is a promise made by only one party. The offerer promises to execute a certain act or an obligation if the offeree agrees on performing a requested act that is understood as a legally enforceable contract. [13]It just requires an acceptance from the other party to get the contract executed. Thus, this is a one-sided contract since only the offerer is bound to the court of law. One important point of this type of contract is that, the offeree cannot be sued for refraining, abandoning or even failing to execute his act, since he does not promise anything.

3.5) Aleatory Contracts

A mutual agreement which comes into effect only in case of an occurrence of an uncertain event or a natural calamity, is termed as an lavatory contract. In this type of contracts, both the parties may assume risks. For example, a fire insurance policy or a travel insurance is a type of lavatory contract as the policy holder will not receive any benefits of the contract unless in an event of fire occurrence or a plane crash (in case of travel insurance).

3.6) Unconscionable Contracts

Unconscionable contracts are those that are unfair and unduly one-way favors of the party who stand at a superior end of the bargaining power. The word ‘unconscionable’ means an insult to justice and decency. No mentally healthy and honest person would ever accept an unconscionable contract and enter into it. Unconscionability of the contract is determined by analyzing the situations and circumstances of the parties involved in the contract, when the contract was made. This doctrine is applied only in cases, in which it would be unjust or an affront to the integrity of the law system to enforce a contract like that. The court of law has found that unconscionable contracts are a result of exploitation of illiterate and impoverished consumers.

3.7) Adhesion Contracts

Adhesion contracts are the ones that are drafted by a party who has a larger advantage in bargaining. This means that the party who has a bargaining advantage leaves the other party with no other option than to either accept the contract or to reject it. Commonly known as “take-it or leave-it” contracts, they are often considered because for most of the businesses, it is difficult to negotiate and bargain all the terms and conditions of every contract. It is not necessary that all adhesion contracts are unconscionable contracts, [14]since in some cases it is quite coincident for one party to have a superior bargaining advantage leaving no option for the other party. This often happens in monopolistic markets. However, courts of law, refuse to implement such contracts of adhesion on the grounds that there was no mutual understanding or an acceptance between the two parties involved in an adhesive contract.

3.8) Void and Voidable Contracts

A void contract implies that the involved parties are not liable to any legal obligations or rights, meaning that the parties are not legally bound with reference to that contract. In fact, a void contract means a contract has ceased to exist and that there is no contract existing between the two parties. [15]

A voidable contract, on the other hand, is an agreement between any two or more parties, that has a legal binding. A voidable contract can be treated as never been legally bound on a party that has been a victim of fraudulent execution or if that party was suffering from any legal disability. Also, a contract is not void unless and until any of the involved parties, choose to treat it as a void contract by confronting its implementation. You may also like to read on:

So with these legal information on the types of contracts, I sign off by wishing you all the very best for your business ventures.

4) Summary of important issues for contract:

4.1) Written  contracts

  • If the contract has been formally written and signed by the parties, there is an assumption that all the terms of the agreement are contained in the written document regardless of what may have been verbally agreed.[16]
  • Contracts can be a combination of written and verbal agreements when the written agreement itself covers very few terms.
  • When a contract is signed, it is assumed that all the terms have been read and agreed to.
  • If unsigned, a written contract must:
    • Be presented to and understood by all parties to be valid
    • Be recognized by all parties as a contract, that is, it must look like a contract and not simply a receipt or docket.

4.2) Verbal  agreements

  • Verbal agreements rely on the good faith of all the parties and can be difficult to prove.
  • Conversely, in some situations, insisting on a detailed written agreement may be counter-productive if:[17]
    • The value of the transaction is not particularly high
    • The presentation of a substantial document, possibly with many provisions, may raise more questions and uncertainty in the minds of the parties than it resolves, ending in the transaction not proceeding. If you are confident of the good faith of the party, a less intimidating form of written arrangement may be the best course of action.
  • Do not automatically think that because it is not in writing, it can never be proved. Verbal agreements can be supported by:
    • The conduct of the other party both before and after the agreement
    • Specific actions of the other party
    • Past dealings with the other party.

5) Conclusion of the Contract:

The contract shall be regarded as concluded, if an agreement has been achieved between the parties on all its essential terms, in the form proper for the similar kind of contracts. As essential shall be recognized the terms, dealing with the object of the contract, the terms, defined as essential or indispensable for the given kind of contracts in the law or in the other legal acts, and also all the terms, about which, by the statement of one of the parties, an accord shall be reached

The contract shall be concluded by way of forwarding the offer (the proposal to conclude the contract) by one of the parties and of its acceptance (the acceptance of the offer) by the other party.[18]

The contract shall be recognized as concluded at the moment, when the person, who has forwarded the offer, has obtained its acceptance.[19]

If in conformity with the law, the transfer of the property is also required for the conclusion of the contract, it shall be regarded as concluded from the moment of the transfer of the corresponding property.[20]

In the cases, when in conformity with the present Code or with the other laws, the conclusion of the contract is obligatory for the party, to which the offer (the draft contract) has been forwarded, this party shall forward to the other party the notification about the acceptance, or about the refusal of the acceptance, or about the acceptance of the offer on different terms (the records on the differences by the draft contract) within 30 days from the date, when the offer was received. The party,[21] which has forwarded the offer and which has received from the party, for which the conclusion of the contract is obligatory, the notification about its acceptance on different terms (the records on the differences by the draft contract), shall have the right to pass the differences, which have arisen during the conclusion of the contract, for consideration to the court within 30 days from the day of receiving such a notification or from the day of the expiry of the term of acceptance . when in conformity with the present Code or with the other legal acts, the conclusion of the contract is obligatory for the party .[22]

So at last we can say that the contract shall be concluded by way of forwarding the offer (the proposal to conclude the contract) by one of the parties and of its acceptance (the acceptance of the offer) by the other party.[23]

[1] Contract Act 1872 (Act No. IX of 1872), the Sale of Goods Act 1930 (Act III of 1930), the Partnership Act 1932 (Act IX of 1932), Repealing and Amending Act 1914 (Act X of 1914)

[2] [Abul Kalam Azad],see wiktionary:legally binding. see Contract (disambiguation), e.g. P.S. Atiyah, ‘Consideration: A Restatement’ in Essays on Contract (1986) p.195

[3] Oxford University Press, Ewan McKendrick, Contract Law – Text, Cases and Materials (2005) Oxford University Press ISBN 0-19-927480-0

[4] see Smith v. Hughes.[3],quantum meruit

[5] Collins v. Godefroy (1831) 1 B. & Ad. 950

[6] See, e.g., Shadwell v. Shadwell (1860) 9 C.B.N.S. 159.

[7] A History of the Common Law of Contract: The Rise of the Action of Assumpsit, (Oxford University Press: Oxford, 1975).

[8] Central London Property Trust Ltd. v. High Trees House Ltd. [1947] KB 130, Journal of the American Medical Association, Vol. 36. (April 20, 1901). p. 1140.

[9] Avanika Mote Published: 3/5/2010 , The term “Quasi Contract” 1 L.Ed.2d 364

[10] cert. dism. (1958) 355 U.S. 597, 78 S.Ct. 526, 2 L.Ed.2d 519 [“it must appear that such (prospective) contract or relationship would otherwise have been entered into”];

[11] Campbell v. Rayburn (1954) 129 Cal.App.2d 232, 234, 276 P.2d 671 [“facts showing that the plaintiff had any reasonable expectation of economic advantage which would otherwise have accrued”].)

[12] the District of Columbia, and the U.S. territories

[13] the United States Congress , the Uniform Commercial Code

[14] the Occupational Safety and Health Act in the United States),

[15] Recall of the Offer, Article 440.

[16] Buckaloo v. Johnson (1975) 14 Cal.3d 815, 122 Cal.Rptr. 745, 537 P.2d 865

[17] Id. at p. 827, italics added, 122 Cal.Rptr. 745, 537 P.2d 865.)

[18] Conclusion of the Contract on the Ground of the Offer, Not Fixing the Term of Acceptance, Article 442

[19] The Acceptance, Obtained with a Delay,Article 443.

[20] The General Part of the Law of Obligation,The General Provisions on the Contract,The Conclusion of the Contract , Article 432.

[21] The Basic Provisions on the Conclusion of a Contract,Article 433

[22] The Irrevocability of the Offer ,Article 437.

[23] Conclusion of the Contract on the Ground of the Offer, Fixing the Term of Acceptance, Article 441