It is a settled principle in English Law that, “to create a contract there must be a common intention of the parties to enter into legal obligations” – Explain & illustrate.

It is a settled principle in English Law that, “to create a contract there must be a common intention of the parties to enter into legal obligations” – Explain & illustrate.

Table of Contents:

SL # Particulars Page #
1. Pre Phase 3
2. Executive Summary 3
3. Introduction 3-4
4. How to make a Contract 5
5. Validity of a Contract 6
6. Void Contract

7. Obligations of Contract 8
8. Contract Act 1872 9-10
9. Cancellation of Contract 11
10. Conclusion 12
11. Bibliography 13

1. Pre-phase

I am preparing this report on “to create a contract there must be a common intention of the parties to enter into legal obligations” under the course of Business Law. At first I am thanking my course instructor Mr. A. M Masum for giving me a excellent assignment topic & also give us lots of suggestions. I am also grateful to lots of web sites & books that provide me lots of information. To completing this report I discussed lots of information of my topic & also visit its related websites. I think these types of work helping us a lot to upgrading our quality of work & also influence my career.

2. Executive Summary

A contract is an agreement between two or more parties, especially one that is written and enforceable by law. In another words A contract is a binding agreement between two or more parties for performing, or refraining from performing, some specified act in exchange for lawful consideration. 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.

3. Introduction

An agreement enforceable by law is a contract. In a contract there must be an agreement and the agreement must be enforceable by law. Every promise and every set of promises, forming the consideration for each other, is an agreement.

According to Salmond, “A contract is an agreement creating and defining obligations between the parties.”

According to 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.“

Elements of Contract:

A contract is an agreement between parties, with terms and conditions that describe the agreement that constitutes a legal obligation. A valid contract typically requires the following elements:

  1. A. Minimum two parties: At least two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the ‘proposal’ or ‘offer’ is called the promisor.
  2. B. Offer and acceptance: There must be an offer and an acceptance & both offer and acceptance should be lawful.
  3. C. Legal obligations: The parties must intend to create a legal obligation.
  4. D. Lawful consideration: A contract is basically a bargain between two parties, each receiving something of value or benefit to them.
  5. E. Free consent: The contracting parties must give their consent freely. Consent means that the parties must agree about the subject matter of the agreement in the same sense and at the same time.
  6. F. Lawful object: The object of the agreement must be lawful. An agreement is unlawful, if it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.
  7. G. Not expressly declared void: An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract.
  8. H. Legal formalities: Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration.

A binding agreement between two or more persons or parties especially one legally enforceable.

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4. How to make a Contract

Contracts can range from formal to informal. Less formal, oral contracts may also be enforceable depending upon the circumstances surrounding the formation of the contract.

  1. A. Place your company name on the top of the contract. The document will usually be set up with two small blocks and one large block below that will consist of information that will make it clear what the two parties agree on.
  2. B. Write the address and description of the event that is the subject of the contract and the contact information of the person you are servicing, including the email address and phone number in the right block. Write the customer’s name and address in the left block.
  3. C. Write in the block below the two blocks the due date to receive the contract back. In most cases you may be making the agreement face to face so you will not need this part. You will have about two paragraphs that will contain valuable information regarding the agreement.
  4. D. State the name of the company or your name in the first paragraph and what services will be provided for the agreed amount of money. This is where you will write what your services are and what you will be doing to receive the fees. You will also mention the date of the event, where and what time you will arrive and how long you will stay (if applicable). If there are any extra costs you will add your stipulations in the first paragraph.
  5. E. State in the second paragraph you will add some more information in order to clarify the contract. You will state the date and time that the event will take place and that the person you are doing a service for is accepting to the proposed pricing structure and services that will be rendered. The customer will sign below and you will need to add on the bottom of the contract your contact information in case the customer has any questions regarding the contract.

All parties must be in agreement & something of value must be exchanged — such as cash, services, or goods.

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5. Validity of Contract

When you start a business, you can expect to be signing contracts with different parties for the duration of your operation. This is a very risky part of business, but is also a very normal part of it. The only way to protect you is to determine the validity of a preferred contract before you sign and make a commitment. As a business owner, one thing that you will constantly deal with is a contract. Whenever you do business, you and your partners will always enter into contracts. In fact, the mere action of incorporating a corporation or partnership requires people to sign and notarize a contract as a sign of good faith and to show that the venture is legal.

Because of its importance, businessmen go to great lengths and take some time to determine the validity of a contract. In business, just because you are extended a contract it doesn’t mean that you should sign it already. You should look into its terms and provisions first to see if you will not run into problems later on after signing that piece of paper and finalizing the deal. The requirements for the contract to be valid are actually very simple. Here are the points that you should look for when a contract is offered to you in relation to your business:

The parties to the contract should be clearly defined. This part is important since it shows who are bound by the terms and provisions of the offered contract. The parties listed in a contract are the ones that reserve the right to do something under the contract.

Any condition, stipulation, or provision binding any person to waive compliance with any provision of this title or with any rule, regulation, or order there under shall be void.

Every contract made in violation of any provision.

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6. Void Contract:

A void contract, also known as a void agreement, is not actually a contract. A void contract cannot be enforced by law. Void contracts are different from voidable contracts, which are contracts that may nullify.

A contract can also be void due to the impossibility of its performance. E g: If a contract is formed between two parties A & B but during the performance of the contract the object of the contract becomes impossible to achieve (due to action by someone or something other than the contracting parties), then the contract cannot be enforced in the court of law and is thus void. A void contract can be one in which any of the prerequisites of a valid contract is/are absent for example if there is no contractual capacity, the contract can be deemed as void. In fact, void means that a contract does not exist at all. The law cannot enforce any legal obligation to either party especially the disappointed party because they are not entitled to any protective laws as far as contracts are concerned.

Features of Void agreements:

  • An agreement made by incompetent parties (Minor/Lunatic Person) is void.
  • Any agreement with a bilateral mistake is void.
  • Agreements which have unlawful consideration is void.
  • Agreement with a unlawful object is void.
  • Agreements made without consideration is void.
  • Agreement in restraint of marriage of any major person is void (absolute restriction).
  • Agreement in restraint of trade is void.(reasonable reason)
  • Agreement in restraint of legal proceedings is void.
  • An agreement the terms of which are uncertain is void.
  • An agreement by way of wager (betting/gambling) is void.
  • An agreement contingent upon the happening of an impossible event is void.
  • Agreement to do impossible acts is void.

A contract can also be void due to the impossibility of its performance. A contract is void if it is worthless.

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7. Obligations of Contracts

A contract imposes obligations on each party to satisfy the conditions of the contract. The duty to fulfill these obligations is called the duty of performance. Generally, the duty of performance is the duty to fulfill each of the conditions of the contract. The failure to fulfill the conditions of the contract is a breach of the contract. When one party breaches a contract, the other party  may be entitled to remedies.

Status of Judicial Decisions:

While the highest state court usually has final authority in determining the construction as well as the validity of contracts entered into under the laws of the State, and the national courts will be bound by their decision of such matters, nevertheless, for reasons that are fairly obvious, this rule does not hold when the contract is one whose obligation is alleged to have been impaired by state law .

“Obligation” Defined:

A contract is analyzable into two elements: the agreement, which comes from the parties, and the obligation, which comes from the law and makes the agreement binding on the parties.

“Impair” Defined:

“The obligations of a contract,” said Chief Justice Hughes for the Court in Home Building & Loan are impaired by a law which renders them invalid, or releases or extinguishes them and impairment has been predicated upon laws which without destroying contracts derogate from substantial contractual rights.”

Vested Rights Not Included:

The term “contracts” is used in the contracts clause in its popular sense of an agreement of minds. The clause therefore does not protect vested rights that are not referable to such an agreement between the State and an individual, such as the right of recovery under a judgment.

The body of rules which deals with the nature and sources of obligations and the rights and duties arising from agreements and the particular contracts.

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8. Contract Act 1872

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.

The way of communication, acceptance, revocation, and conversion of proposal into promise is described in chapter one. Chapter two defines and interprets different types of contracts, voidable contracts, and void agreements. This chapter also defines essential terms such as consent, free consent, undue influence, fraud, and misrepresentation, and gives their legal interpretation. Competency of persons to be a party to contract and the conditions for void contracts are elaborated in this chapter. The definition of contingent contracts and inherent explanations on them and their enforceability are the concerns of chapter three.

Chapter four explains the obligations of parties to contract, effects of complying to these obligations and of refusal to meet them, the time and place of performance of reciprocal promises, appropriation of payments including their legal position, and situations when and by whom contracts must be performed or need not be performed. Effects of novation, rescission, and alteration of contract, consequence of rescission of voidable contract, obligation of persons who have received advantages under void agreement or contract are also described in this chapter. Chapter five explains the claims for necessaries supplied to persons incapable of contracting and the reimbursement of claims of persons who pay money due by another in payment of which he is interested. Obligation of persons enjoying benefit of non-gratuitous act and responsibility of a bailee and repayment claim of persons paying a sum of money by mistake are also elaborated in this chapter.

Chapter six narrates the consequence of breach of contract. Compensation for loss or damage caused by breach of contract and failure to discharge obligation resembling those created by contract, and the entitlement of compensation are explained in this chapter. Chapter Seven is related to sale of goods repealed by the Sale of Goods Act 1930 (Act III of 1930). Under the broad area of indemnity and guarantee, chapter eight defines contract of indemnity, contract of guarantee, surety, and principal debtor and creditor. Interpretation on consideration of guarantee, surety’s liability, continuing guarantee, revocation of continuing guarantee in different situations, rights and obligations of surety and co-sureties are detailed in this chapter. It also explains surety’s right to benefit of creditor securities, implied promise to indemnify surety, and liability of co-sureties bound in different sums. Chapter nine is concerned with bailment. It states the method of delivery to bailee, bailor’s duty to disclose faults in goods bailed, and the care to be taken by the bailee. Responsibility of bailee for loss of things bailed, termination of bailment by bailee’s act inconsistent with conditions, and liability of bailee making unauthorised use of goods bailed are elaborated in different sections of this chapter. Impact of mixture of goods with or without the consent of the bailor, repayment by bailor of necessary expenses, restoration of goods lent gratuitously, bailor’s responsibility to bailee, bailment by several joint owners, right of third parties claiming goods bailed, bailee’s particular lien, and the general lien of bankers, factors, wharfingers, attorneys and policy-brokers are also explained in detail in this chapter. A section of the chapter under the sub-title Bailment of Pledges defines pledge, pawnor and pawnee and explains their rights and responsibilities as well as provision for suits by balees or bailors against wrong-doers.

Chapter ten states the legal aspects of and provision for appointment and authority of agents and sub-agents. Detail provisions are made regarding the qualification of agents to be appointed, their duties and responsibilities, appointment of sub-agents and their responsibility and accountability, relation between agents and sub-agents, and with the principal. Provisions have also been made for revocation of authority. The chapter explains the principal’s duty to agents and the effect of agency on contract with third persons. Chapter eleven is concerned with partnership, later repealed by the Partnership Act 1932 (Act IX of 1932).

There are some schedules at the end of the Act, which have been repealed by the Repealing and Amending Act 1914 (Act X of 1914).

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9. Cancellation of Contract:

Have you ever signed a contract and then regretted it a day later? Say you were to sign an agreement with a fitness club then went home to discover that someone just bought you a treadmill. Now you want out, but what are your options? Thankfully, because of helpful laws established by the Federal Trade Commission (FTC) and individual states, you can cancel some types of contracts within a few days of signing. It’s important to keep in mind that not all contracts can be canceled with the support of state or federal law, so you have to do some research before writing a cancellation letter.

  1. A. Check your state laws to determine your contract cancellation rights. The Truth in Lending Act gives you three days to change you mind about a second mortgage or home improvement loan. See “Resources” below and click the “Consumer action state websites” link to find and contact your state consumer protection office.
  2. B. Write in the date at the top of the letter. Write the name and address of the party that you contracted with a couple of lines down.
  1. C. Get right to the point. Explain that you want to cancel your contract. Identify the contract by name and number (if applicable).
  1. D. Discuss why you want to cancel the contract. This is not always necessary, but it could help your cause. Some state laws may also require that you give a valid reason for canceling the contract.
  1. E. Include your full address and phone number at the bottom of the letter and sign it in the presence of a notary. The notary will be able to verify the date that you canceled with the entry in his or her book. Make a copy of the letter for your own records.
  1. F. Deliver the letter in person or mail the letter via either overnight service with return receipt and signature confirmation or, if there isn’t so much of a rush, certified mail with a return receipt and signature confirmation. This will assure that you have proof of the date that you canceled and that the other party received the letter.

10. Conclusion:

The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. A contractual relationship is evidenced by (1) an offer, (2) acceptance of the offer, and a (3) valid (legal and valuable) consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. However, while all parties may expect a fair benefit from the contract. It does not follow that each party will benefit to an equal extent. Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is not void (see void contract) or voidable. Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it.

10. Bibliography

  1. Commercial Law & Industrial Law (25th Edition) by Arun Kumar Sen & Jitendra Kumar Mitra.
  2. The Indiana Contract Act (3rd Edition) by Mullah.
  3. The Law of Contracts (7th Edition) by Noshirvan H. Jhabvala.