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Contract Law

Offer, Acceptance & Consideration

What is



Sec-2(h) of Contract Act, 1872 provides that~ A contract is an agreement which is enforceable by law. Therefore in a contract there must be~ i) an agreement & ii) the agreement must be enforced by law.

A contract is an agreement giving rise to obligations which are enforced or recognized by the law. -[Treitel Example: X says to Y, Will you buy my house for Tk 3
lacs? This is an offer. If Y says, Yes, the offer is accepted and a contract is formed.

Note: [Every contract is an agreement but all

agreements are not contract]


elements of a Contract

Offer & Acceptance

Lawful consideration Intention to create legal relationship

Capacity of parties
Free consent Legality of object Certainty Possibility of performance Void/Valid agreements Writing Registration & legal formalities

Note: [For the essential elements of a

Contract, please see the examples from: Page 13-15, Sen & Mitra, 25th Edition (2006)]

Contract classified in 4 broad divisions


of Formation

i) Implied Contract: ..... from the act, the conduct of the parties and/or the course of dealing between them (i.e..... ii) Expressed Contract: ..... expressed in words spoken or written (i.e..... iii) Quasi Contract: ..... when one person obtains a benefit at the expense of another and the circumstances are such that he ought equitably to pay for it, the law will compel payment, even though these is no contract between the parties by which 5 payment is promised (i.e.....

Time of Performance

Executed: There are contracts

where the party perform their obligations immediately, as soon as the contract is formed (i.e....

Executory: The obligations of the

parties are to be performed at a later time (i.e....

Legality or validity of the Contract

Void An agreement not enforced by law (i.e.- an agreement with a minor). Voidable An agreement which is not enforceable by law and can be avoided or enforced at the option of one or more of the parties (i.e.- an agreement made without consideration: An agreement under coercion). Illegal- An agreement which is against the law (i.e. an agreement to kill a man). Valid- an agreement which satisfies all the essential elements of a contract

The Parties of the Contract


What is an Offer...?

Definition~ An offer is an

expression of willingness to contract made with the intention (actual or apparent) that it shall become binding on the offeror as soon as it is accepted by the person to whom it is addressed. -Treitel

What is Proposal......?


An offer involves the making of a proposal. The term proposal is defined in the Sec 2(a) of The Contract Act, 1872 as: 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

- A proposal is also called an offer. The promisor or the person making the offer is called the Offeror. The person to whom the offer is made is called the Promisee/ Offeree.
Promisor/ Offeror Promisee/ Offeree


What is

Invitation to Treat....?


An invitation to treat is made at a preliminary stage in the morning of an agreement. The court looks at both the words used and surrounding circumstances to determine the real intention of the parties.

Offer Vs Invitation to Treat


Whether real intention...............? - It is not an offer unless it was made with the intention that it should be binding as soon as the person to whom it was addressed communicates his assent.

- Absence of distinct party

Example: i) Display of goods in shop invitation to treat ii) Advertising invitation to treat iii) Ticket offer iv) Auction Sale- invitation to treat iv) Tenders invitation to treat

Examples with Explanation:

i) Display of goods in shop: The issue is whether the display of goods in shops, on shelves or in the window with a price tag attracted is an Offer or an Invitation to Treat....?
- If it is an offer, then the customer can accept it by indicating his desire to buy the item and the shopkeeper must then sell it to him at the stated price. - If it is an invitation to treat, offer is made by the customer in seeking to by the item, and the shopkeeper can accept or refuse the offer as he whishes.

ii) Advertising invitation to treat Whether or not advertisements can amount to offers depend to a large extent on whether there are bilateral or unilateral, that is capable of acceptance by one or a limited number of 16 persons or open to all the world to accept.

iii) iv)

Ticket An offer

Auction Sale- invitation to treat: Because, the call for bids is a request for offer, so it is an invitation to treat. Tender invitation to treat Because, it is a request by the owner of the goods for offers to purchase them, so it is an invitation to treat.


Types of Offer

Unilateral Bilateral Multilateral




[Carlill v Carbolic Smoke Ball Co Ltd]

The defendant issued an advertisement promising to pay 100 to any person who used as prescribed carbolic smoke balls made by them, and then caught influenza. They stated that they had deposited 1,000 with their banks showing their sincerity in this matter. The plaintiff used the smoke balls, caught influenza and claimed her 1,00. The defendants claimed, inter alia, that she was not entitled to payment because their advertisement had not amounted to an offer. Decision~ It was held that this advertisement did constitute an offer and the defendants had indicated their intention 19 to be bound by the deposit with their bankers.


regarding Offer

The Contract Act contains various rules regarding offer or proposal. They can be summed up as follows~ i) An offer may be implied, expressed or quasi from the circumstances. ii) An offer may be made to a definite person: to some definite class of persons: or to the world at large. iii) Legal relationship is required iv) The terms of the offer must be certain, definite, unambiguous and not vague. v) A mere statement of intention is not an offer. vi) An offer must be communicated to the offeree. vii) An offer may be conditional. viii) Contract ideally should be printed. Note: [For the rules regarding Offer, please see the examples from: Page 18-22, Sen & Mitra, 25th Edition (2006)]


What is Acceptance.?
-An acceptance is a final and unqualified consent of the terms of an offer. Unless it can be shown that there was such consent, then there is no contract.


Who can Accept....?

An offer can be accepted only by the person or persons for whom the offer is intended. An offer made to a particular person can only be accepted by him because he is the only person intended to accept.


What is




Consideration is an essential element in a contract. Subject to certain conditions, an agreement is not enforceable unless each party to the agreement gets something. This something is called consideration. It is used in the sense of quid pro quo i.e. something in return.


i) P agrees to sell a house to Q for Tk.80,000/. For Ps promise/offer, the consideration is Tk.80,000/. For Qs promise/acceptance, the consideration is the house.

ii) X promises not to file a suit against Y, if Y pays him Tk.100/ by a fixed date. The forbearance of X is the consideration for Ys payment.


The acceptance of an offer to be legally effective must satisfy the following requirements~ It must be an absolute and unqualified acceptance of all the terms of the offer. Conditional acceptanceAn acceptance with a variation is no acceptance. It is simply a counter proposal/offer.

Rules regarding Acceptance

Contracts subject to condition-.... rights and obligations may be dependent upon the happening of a particular event.

Clarification.Seeking clarification of an offer neither amounts to the acceptance of the offer nor to the making of a counter offer.

The acceptance must be expressed in some usual or reasonable manner. Mental acceptance communicated assent result in a contract. or does unnot

The mode of acceptance-.....where the offeror prescribes a particular mode of acceptance, the offeree must follow that particular mode of acceptance.

Time of acceptance-....If the offeror prescribes a time, the acceptance must be done within that time. When acceptance is complete....? Before Offer-... acceptance must not be given before the offer.

The acceptance must be made while the offer is in force.

Note: [For the rules regarding Acceptance, please see the examples from: Page 23-26, Sen & Mitra, 25th 28 Edition(2006)].

Problems of Acceptance
There are 6 ways where problem of Acceptance frequently occurs~
i) Counter offer

ii) Request for information

iii) The battle of form iv) Acceptance in ignorance of an offer v) Motive for the acceptance vi) Classification of implied terms

Explanations: Acceptance~

i) Counter offers In order to create a binding agreement, the offer and acceptance must match. The offeree must accept all the terms of the offer. It is his reply to an offer, the offeree introduces a new term or terms, or varies the terms of the offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as an offer itself. A counter offer which the original offeror is free to accept or reject. ii) Request for information If the offeree is merely seeking further information before deciding whether to accept an offer, or enquiring as to whether the offeror will modify his terms then he is not necessarily meaning a counter offer.

Iii) Acceptance in ignorance of an offer: It would seem illogical to consider such an acceptance to be valid, as it ignores the requirement of intention on the part of the offeree.
iv) Motive for the acceptanceA motive other than accepting the offer if it arises, then whether his act amounts to a valid acceptance.....? Answer~ Yes; Patterson J said - We can not go into the plaintiffs motives.



Clarification of implied terms

The reply will not amount to a counter offer if those terms would in any case, be implied into the offer. In other words~ The seeking clarification of offer neither amounts to the acceptance of the offer nor to the making of a counter offer.


Vi) The battle of forms The rule that

offer and acceptance must correspond with each other gives rise to problems where each party wants to contract on the basis of standard terms and these terms differ, which is called tug of war. The principles of law which emerge from this principle are~
01. Where the contracting parties form a contract which purports to be on the terms and conditions of both parties and those terms and conditions are at variation theni) If the variation is insignificant, the offeree can impose the variation without drawing the offerors attention specifically to it. ii) Where there is a difference which is so significant as would affect the price, the offeree can not take advantage of it unless he clearly draws it to the attention of the offeror.

02) Where a counter offer is accepted on its terms, then the original offer becomes totally 33 void.

Contract Law

Acceptance &


Communication of Offer/Acceptance

An offer/acceptance can be communicated~ - by conduct - by word of mouth - by writing .. Sec-4 - The communication of a proposal/an offer is complete when it comes to the knowledge of the person to whom it is made.

Sec-5 - An acceptance can be revoked any time before the acceptance comes to the knowledge of the proposer but not afterwards.

The General rule is that~ an acceptance must be communicated to the offeror, until and unless the acceptance is so communicated, no contract comes into existence.

Exception to the GR~

The general rule as to acceptance must does not, or is modified in the following areasi) Where the ofteror expressly or impliedly waives the requirement that acceptance to be communicated. It usually happens in unilateral contract.


ii) It was communicated to the offeror but was not received or heard by the offeror as a result of his own fault or omission. Example; [This would be the case in the example given by Lord

Denning MR in Entores v Miles Far East Corporation if the listener on the telephone does not catch the words of acceptance but nevertheless does not ask for them to be repeated].

iii) Where the acceptance is communicated to the offerors agent and the agent has authority to receive that acceptance on behalf of his principal. iv) Where the postal rule applies, in which case the acceptance can be effective before it is in fact received by the offeror. v) In Bloxhams case it is mentioned that~ The offeror knows of the acceptance and hence there can be a valid contract, even though the acceptance was not brought to his attention by the offeree. vi) Where the acceptance is communicated to the offeror by a person other then the offeree, these will be no contract if that third party had no authority to do act on behalf of the offeree.

Postal Rule
Defn: Acceptance is communicated when the offeree posts the letter or telegram. Where acceptance is by post, there are 3 possible moments when that acceptance could be completed~
i) When the letter is posted by the offeree.

ii) When the letter it delivered to the offeror.

iii) When the letter is actually brought to the attention of the offeror. 38

-Giving a letter to an unauthorized person will not amount to acceptance of an offer:

-Telegram: Postal rule is applicable.

-Telephone: the offer and acceptance must be audible, heard and understood.

-Telex/Fax /Tele-printer: Postal rule does not apply, in that case the words written in the agreement must be distinct and clear. If the printer/receiver machine of the offeror is out of order, in that case the offeree is not responsible.
-E-mail: ..........?

When it is assumed

to be Communicated? Time
3 days 3 days 3 days Next day 5.00 pm Audible, heard& understood

By Post (EMS) Qurier Service Telegram Telex/Fax/E-mail Telephone


Can Silence be an



An offeree who does nothing in respect to an offer is not bound by the terms of that offer.

In other words: The offeror can not, in other words, impose silence as acceptance by the offeree.

Can an offeree withdraw his acceptance, after it has been posted by a letter communication, which reaches the offeror before the acceptance.................?


No clear authority in English law, But in Indian law, May be possible.


Revocation/Termination of an offer
An offer continues in existence, capable of acceptance unit it is brought to an end. There are 6 ways in which this can occur~ i) By Notice ii) Refusal/Rejection by the offeree iii) Lapse of time/ Expiry of reasonable time iv) Occurrence of a terminating condition v) Death

vi) Insanity, incapacity, Insolvency or impossibility.

Note: [For the rules regarding Revocation, please see the examples from: Page 29-31, Sen & Mitra, 45 25th Edition(2006)]

Communication of Revocation

Bilateral Contract

- The revocation of the offer must be communicated to the offeree (s). - It must be shown that the offeree was actually aware of the revocation.

Unilateral Contract

- Once the offeree has commenced performance of the act that constitute acceptance, the offer can no longer be revoked - But until that act has been completely performed, the offer has not been accepted so as to form a binding contract.


It was declared by English Channel (EC) Authority that who so ever crosses EC, he would be rewarded 1,000. In this situation, if someone tries to cross EC, the offer can not be revoked. On the other hand, if the offeree can not cross the English Channel, then it is to be assumed that the contract has not been accepted so as to form a binding contract.

What is




Consideration is an essential element in a contract. Subject to certain conditions, an agreement is not enforceable unless each party to the agreement gets something. This something is called consideration. It is used in the sense of quid pro quo i.e. something in return.
Sec-29(d) of the Contract Act defines consideration as follows~ When at the desire of the offeror, the offeree or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. In the famous English case [Currie Vs Misa] Consideration was defined as~ Some rights, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility 48 given suffered or undertaken by the other.

i) P agrees to sell a house to Q for Tk.80,000/. For Ps promise/offer, the consideration is Tk.80,000/. For Qs promise/acceptance, the consideration is the house. ii) X promises not to file a suit against Y, if Y pays him Tk.100/ by a fixed date. The forbearance of X is the consideration for Ys payment.

Principles of Consideration
There are 4 basic principles of consideration~

i) Consideration must move from the offeree.

ii) Consideration must be real: it must no be sham or illusory. iii) Consideration must be sufficient, but need not be adequate. iv) Consideration must not be past.


Consideration must not be past

Exceptions~ i) Previous Request

If the promisor has previously asked the other party to provide goods or services, then a promise made after they are provided will be treated as binding

ii) Business Situations If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid. iii) The Bill of Exchange Any antecedent debt or liability is valid consideration for a bill of exchange. For example, A mows B's lawn and a week later B gives A a cheque for 10. A's work is valid consideration in exchange for the cheque. 51

No consideration, no contract
-Consideration is essential for the validity of a contract. An offer without consideration is a gift; one made for a consideration is a bargain. -An offer without consideration is a gratuitous undertaking and can not create a legal obligation


There are exceptional cases where a contract is enforceable even though there is no consideration. They are as follows~ i) Natural love and affection ii) Voluntary Compensation iii) Time-barred debt

iv) Agency
v) Completed gift vi) Public duty

vii) Promises to charity

Note: [For the rules regarding Consideration, please see the examples from: Page 28-32, Sen & Mitra, 25th Edition (2006)]


of The

Privity Rule

-The general rule is that only those who are parties to a contract can enforce it or have rights under it. Other people might benefit indirectly from the contract being enforced, but the third parties cannot bring legal action in their own name to have it enforced.



a person who is not a party to a contract sue upon it.....?



A person who is not a party to a contract is a stranger. A stranger can not file a suit to enforce it, But a stranger to the consideration can sue to enforce it provided he is a party to the contract.

Exceptions~ There are certain exceptions where a stranger can sue. They are as follows~ i) Beneficiaries in the trust

ii) Provision of Marriage Settlement of Minor

iii) Assignee of a contract iv) Family Settlement

v) Acknowledgement or Estoppels
Note: [For the rules regarding Stranger, please see the examples from: Page 33, Sen & Mitra, 25th Edition (2006)]

English Vs Indian law regarding


The difference between the English and the Indian law relating to consideration are described below~ i) The Indian law of contract does not make any distinction between Formal contracts and Simple contracts. In India, excepting few cases, all contracts require consideration. ii) Under English law, past consideration is no consideration. Under Indian law, past consideration is good consideration. iii) Under English law, consideration must move from the offeree. Under Indian law, it may move from the offeree or any other person.

Contract Law

- Capacities of Parties - Free Consent



of Parties..?


Who can Contract.........?

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.
Sec-11 of the Contract Act states that~

A person is incapable of entering into contracts under the following circumstances: i) if he has not attained the age of majority according to the law to which he is subject.
ii) if he is not of sound mind (i.e., if he is a lunatic or an idiot or suffering from a similar disability): and,

iii) if he is disqualified from contracting by any law to which he is subject. 60

The Law regarding Minors Agreement~

Usually as per law, a minor can not contract except with few exceptions. The law regarding agreements by minors may be summarized as follows: i) Minors agreement is void ii) A minor can be a promisee iii) Minors liability for necessaries iv) Law regarding compensation or Restitution v) No Estoppel is applicable to the Minor vi) No Ratification vii) No specific performance viii) No insolvency

Note: [For the rules regarding Minors Agreement, please see the examples from: Page 49-54, Sen & Mitra, 25th Edition (2006)]

Principle of Promissory Estoppels~

The principle of promissory estoppels is a rule of evidence. When a man has, by words spoken or written, or by conduct, induced another to believe that a certain state of things exist, he will not be allowed to deny the existence of that state of things. In other words~ A man can not deny the fact which he has asserted earlier. - Lord Halsbury

Free Consent...............?


What is

Free Consent...........?

agreement is valid only when it is the result of the free consent of all the parties to it. states~ Two or more persons are said to consent when they agree upon the same thing in the same sense.



Sec-14 states~ Consent is not free if it is caused by: i) Coercion ii) Undue influence iii) Fraud iv) Misrepresentation v) Mistake i) Coercion Regarding coercion, there are exceptions~ i) Prosecution ii) High prices and high interest rates iii) A threat to commit suicide Note: [For the rules regarding Free Consent, please see the examples from: Page 59-75, Sen & Mitra, 25th Edition (2006)]

Undue Influence Vs Coercion

In both undue influence and coercion, one party is under the influence of another~

i) In coercion the influence arises from committing or threatening to commit an offence punishable under the Bdesh Penal code or detaining or treating to detain property unlawfully. Whereas, In undue influence, the influence arises from the domination of the will of one person over another.
ii) Cases of coercion are mostly cases of the use of physical force. Whereas, in undue influence there is mental pressure.

Fraud Vs Misrepresentation
The difference between fraud & misrepresentation are as follows~ i) Different Intention: In misrepresentation there is no intention to deceive. Whereas, fraud implies an intention to deceive. ii) Different Belief: If the statement is honest, even though it was wrong, this is misrepresentation. Whereas, if the statement is dishonest it is a case of fraud. iii) Different Rights: In case of misrepresentation, the only remedy is rescission. There can be no suit for damages. Whereas, in case of fraud, the party aggrieved can rescind the contract (i.e., the contract is voidable at his option) and can also sue for damage. iv) Different Defense: In misrepresentation, if the circumstances are such that the aggrieved party might have discovered the truth with ordinary diligence, the contract can not be avoided (voidable). Whereas, in fraud there is no such defense. Here aggrieved party can rescind the contract and/or file a suit for damages.

Can Silence be Answer~


Regarding fraud, silence can be fraudulent under the following rules:

i) The general rule is that mere silence is not fraud.

ii) Silence is fraudulent, if the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak. The duty to speak i.e., disclose all facts. iii) Silence is fraudulent where the circumstances are such that, silence is in itself equivalent to speech.
Example~ B says to A, if you do not deny it, I shall assume that the horse is sound. A says nothing. Here As silence is equivalent to speech. If the horse is unsound As silence is fraudulent.

Principle of Uberrimae Fidei~

Uberrimae fidei contracts are contracts where law imposes upon the parties the duty of making a full disclosure of all material facts. In such contracts, if one of the

parties has any information concerning the subject matter of the transaction which is likely to affect the willingness of the other party to enter into the transaction, he is bound to disclose the information.

Principle of Caveat Emptor~ .................? Answer~

..... means Buyer Beware


Contract Law

-Termination - Breach &

- Remedies - Tort Law

Termination/Discharge/Breach of Contract......?
When the obligations created by a contract come to an end, the contract is said to be discharged or terminated. A contract could be discharged/terminated in the following 7 ways~

i) Termination by Performance ii) Termination by Mutual agreement iii) Subsequent or Supervening impossibility
b) Post-contractual impossibility iv) Termination by Operation of Law v) Lapse of Time vi) Termination by Material alteration vii) Termination by Breach of contract a) Anticipatory breach of contract
b) Actual breach of contract a) Pre-contractual impossibility

Note: [For the rules regarding Termination of Contract, please see the examples from: Page 115-129, Sen & Mitra, 25th Edition (2006)]


of Doctrine of Frustration

A contract which at the time it was entered into was capable of being performed may subsequently become impossible to perform or unlawful. In such cases the contract becomes void. This is known as doctrine of Supervening Impossibility. It is also known as Doctrine of Frustration. In other words~ 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 Doctrine of Frustration or supervening impossibility.

Grounds of Frustration~
Frustration or Supervening impossibility may occur in many ways. Some of which are explained bellowi) Destruction of an object ii) Change of law iii) Failure of pre-condition iv) Death v) Personal incapacity vi) Outbreak of war

Initial development of the Doctrine~ [Taylor v Caldwell] In 1863, Caldwell agreed to let a music hall to Taylor so that 4 concerts could be held there. Before the date of the first concert, the hall was destroyed by fire. Taylor claimed damages for Caldwells failure to make the premises available. Decision~ The court held the claim for breach of contract must fail since it had become impossible to fulfill.


of Frustration~

Radical Change in the Obligations/ Construction Test:

to construe the contractual terms in the light of the contract and surrounding circumstances at the time of its creation to examine the new circumstances and decide what would happen if the existing terms are applied to it. to compare the two contractual obligations and see if there is a radical or fundamental change.


Breach of Contract: Remedies

When a breach of contract occurs, the aggrieved party or the injured party becomes entitled to the following relieves~ i) Rescind the Contract

ii) Suit for Quantum Meruit

iii) Suit for Damages

iv) Suit for Equitable Remedies

- Specific performance - Injunction

Principle of Quantum Meruit

The phrase 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 other reason. This is known as the doctrine of Quantum Meruit.


Types of Damages~
i) Compensatory damage ii) Special damage iii) Nominal/Contemptuous damage iv) Exemplary, Punitive or Vindictive damage

Rules~ The rules on the subject of assessment or amount of loss/damages can be summarized as follows~ - Actual loss - Natural and usual loss - Special damages - Restitution and Compensation - Costs - Minimization of loss - Effect of a penalty clause - Difficulty of assessment Note: [For the rules regarding Types/Assessment of Damages, please see the definition & examples from: Page 131-136, Sen & Mitra, 25th Edition (2006)]

Rules regarding the amount of Damages~

Principles~ It has 2 important characteristicsi) Not a punishment of the defendant, but the compensation for the complainant. ii) Should not be made profit.

Remoteness of Damages: [Hadley Vs Baxendale (1854)]

i) arising naturally

From this case law, 2 principles emerged about the assessment of damage. The damage should be amounted if it is ~

ii) contemplated by the parties at the time of the Contract

Sec-73 of the Contract Act says~ In case of a breach of contract, the affected/injured party is entitled to receive compensation for any loss or damage which arose naturally from the breach or which the parties knew to be79

To prove causation exists, the plaintiff must establish that the state of affairs which he alleges caused his loss was a direct consequence of the breach. Characteristics~ i) Where there are two causes of loss, one arising from breach and one not, the one will be sufficient to sustain an action ii) An intervening act of a third party which causes additional loss, or aggravated the existing situation, will not relieve the defendant from liability if that intervening act was reasonably foreseeable.

Mitigation of Damages
No plaintiff should make a profit. It will be a duty of the plaintiff to show that so far as was possible to mitigated his/her loss. In other words~ It is the duty of every plaintiff to mitigate his loss, that is, to do his best not to increase the amount of damages done.

There are 3 rules: i) The plaintiff can not recover for loss, if that loss could have been avoided by reasonable steps. It is also true that the plaintiff is not expected to take risks to mitigate loss. ii) The plaintiff can not recover for any loss he has actually avoided, even though he took more steps than were necessary in compliance with Rule(i). iii) The plaintiff may recover his loss incurred in taking reasonable steps to mitigate his loss, even though ultimately he was unsuccessful. 81

What is an Exclusion Clause.......?

An exclusion or exemption clause is one which purports to exclude wholly, or in part, liability for certain breaches of contract of for the happening of certain events. If the exclusion is only partial, then the clause may be called a limitation of liability clause.


The contra proferentem rule

Literally translated this phrase means..... that the clause will, if there is any ambiguity be construed against the interests of the person seeking to rely on it. Thus, where a clause fails to deal with a particular matter, or is vague or uncertain, no account will be taken on the purported exclusion.
Example~ The plaintiff (a Tenant) leased a warehouse from the defendant (a Landlord). In the lease was a clause which purported to exempt liability for loss and damage which would not arisen but for the tenancy. The goods were damaged by a spark which gave rise to a fire.
Decision~ It was held, on a construction contra proferentem, that the loss did not arise from the relationship of landlord and tenant, and so the clause was not applicable to exempt liability for the loss.

Exclusion Clause

can be 2 types~

i) Penalty Clause ii) Liquidated Damages Clause

What is a Penalty Clause..........?

A clause which purports to punish the breacher, in excess of his real loss/damage is said to be a penalty clause. Penalty clauses are not valid; in an action for breach of contract they are disregarded.

What is a Liquidated Damages Clause..........?

A liquidated damages clause, if breach of contract is the actual assessment of damage/lose. In other words~ it is nothing but the mitigated damages. In other words~A liquidated damages clause in a contract will be effective in the event of breach of contract and no action for unliquidated damages will be permitted, provided the so-called liquidated damages clause is a genuine attempt to preassessment damages and not a penalty clause.

Liquidated clause damages Vs Penalty clause

From [Dunlop Pneumatic Tyre Co Vs New Garage and Motor Co Ltd (1985)], four (4) tests developed which would prove helpful in deciding if the clause was a penalty or not~
i) If the sum(s) stipulated is extravagant and unconscionable in amount in comparison to the greatest loss that might be sustained, it will be a penalty. ii) If the breach consists in not paying money and the sum(s) stipulated is far greater (e.g. to make a debtor pay 1000, if he fails to repay by the due date) then it will be a penalty. iii) When a whole series of potential breaches, some serious, some not, are to be compensated by the payment of a single lump sum, then it is a strong presumption that this must be a penalty.

iv) Even if it is almost impossible to pre-estimate financial consequences of breach to any degree of preciseness, it will not be a penalty, provided there really is a genuine attempt by the parties to pre-assess likely damages, even if their attempt is not accurate.


A owes Tk. 50.000/ to B. If A can not pay/return the money with in next one month, he has to pay a fine of Tk. 50/ per day. For the breach of contract, if B suffers the damage/loss of Tk. Tk. 50/ or more, then it is liquidated damages. On the other hand, if the damage/loss is Tk. 40/ or less than Tk. 50/, is a penalty clause.

In case of liquidated damages, courts allow only the amount stipulated, never more or less even though it is shown that the actual loss is different from the amount mentioned. Penalty clauses, however, are treated as invalid. The court allows only reasonable compensation by way of damages.

Equitable Remedies
If the damages are insufficient, then there are 2 types of equitable remedies~

i) Specific Performance: an equitable remedy for breach of contract. If the plaintiff can show that damages are inadequate, then the court may entertain his claim and direct the defendant for performance.
ii) Injunctions~ Injunction are 4 types~
a) Prohibitory injunction

An injunction which orders the defendant to refrain from continuing with his tortuous activities.

b) Mandatory injunction

A mandatory injunction will not be granted where the plaintiff shows that there is a very strong probability that grave danger will accrue to him in future if the injunction is not granted.
c) Quia timet injunction

The tort has not yet been communicated, but the plaintiff apprehends that he will suffer imminent substantial damage from commission of the tort.
d) Interlocutory injunction

Whether or not to grant such injunction, the court does not inquire into the substantive merits of the case; instead the plaintiff must show that there is a serious issue to be tried and that the balance of convenience lies in his favor.

Damages which are usually

i) Injury to reputation ii) Injury to feelings iii) Failure to make/show title to land

Note: Although in contract law, the above damages are irrevocable, but can be recoverable in Tort Law. It will be discussed later while we shall study Labor/Employment Law.


What is Tort


Answer~ - A tort is a civil wrong which is not solely a breach

of contract or a breach of trust, and which gives rise to civil proceedings to enforce a right.

- The law of tort is concerned with the legal duties that individuals owe to each other and with the legal rights that the law will protect.

i.e. Negligence, Nuisance, Defamation, Malicious Falsehood, Passing off



The Sale of Goods Act, 1930


Defn~ Buyer: Buyer means a person who buys or agrees to buy goods..

Seller: Seller means a person who sells or agrees to sell goods.. Goods: The term Goods includes every kind of movable property except(i) actionable claims & (ii) money.

What is

actionable claim.....?

Defn: An actionable claim means a debt or a claim for

money which a person may have against another which he may recover by suit. Money means legal tender money. These two types of movable property are not included in the definition of the term Goods as used in the Sale of Goods Act. All other types of movable property are Goods under the said Act.

Types of


Goods may be classified into 3 types:

Existing Goods: which are already in existence and which are physically present in some persons possession and ownership. Existing Goods are of 2 types~
Specific and Ascertained Goods Generic or Un-specific and Unascertained Goods

Future Goods;... which would be produced in future. Contingent Goods:.... depends upon a contingency which may or may not happen.

Example of


Future Goods: P agrees to sell to Q all the mangoes which will be produced in his garden next year. This is an agreement for the sale of future goods. Contingent Goods: X agrees to sell to Y a certain ring provided he is able to purchase it from its present owner. This is an agreement for the sale of contingent goods.


Sale & Agreement to Sell~

Sale: Where under a contract of sale the property in goods (i.e. the ownership) is transferred from the seller to the buyer the contract is called a sale. Agreement to Sell: When the transfer of ownership is to take place at a future time or subject to some condition to be fulfilled later, the contract is called an agreement to sell.
Remember: [An agreement to sell becomes a sale when the prescribed time elapse or the conditions, subject to which the property in the goods is to be transferred, are fulfilled].


Sale Vs Agreement to Sell~

The difference between Sale and Agreement to Sell are as follows~ i) Transfer of ownership: In Agreement to Sell, the property in the Goods remains with the seller until the agreement to sell becomes a sale by the expiry of the agreed time. ii) Transfer of risk: Passing of risk principle applies.

iii) Nature of contract: Sale is an Executed Contract whereas, Agreement to Sell is an Executory Contract.
iv) Remedial measures: In case of Sale, the unpaid seller has certain relieves available, e.g.. Lien, Stoppage in transit & Resale. Whereas, in Agreement to Sell, the sellers remedy for breach of contract by the buyer, is suit for damage.

Defn: Condition, Warrantee &


Condition: A condition is a stipulation essential to the main purpose of the contract. Warranty: a warrantee is a stipulation collateral term and subsidiary to the main purpose of the contract. Guarantee: A contract of guarantee is a contract to perform the promise or discharge the liability, of a third person in case of his default.


Condition Vs Warrantee~
The difference between Condition and Warrantee are as follows~

i) Condition is a term which is essential to the main purpose of the contract. Warranty is only a collateral term. It is subsidiary to the main purpose of the contract.
ii) Breach of a condition gives aggrieved party a right to repudiate the contract. It also creates a right to get damages. Whereas, breach of warrantee entitles the aggrieved party to claim damages only. ii) A breach of condition may under certain circumstances, be treated as warrantee. But a warrantee can not become a condition.


Warrantee Vs Guarantee~
The difference between Warrantee and Guarantee are as follows~ i) Guarantee gives aggrieved party full replacement of the product as well as services where required. Whereas, warrantee entitles the aggrieved party only services where required. ii) All guarantees may be termed as warrantees, but all warrantees are not guarantees.

Doctrine of Caveat Emptor~ Caveat Emptor is a latin expression which means buyer 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 can not blame the seller to recover damages from him.

(i) Where the buyer relies upon the skill and judgment of the seller. (ii) Where by custom an implied condition of fitness is annexed to a contract of sale. (iii) Where there is a sale of goods by description, there is an implied condition that the goods are fit for sale. (iv) Where the seller is guilty of fraud.

Note: [Please

remember, the Principle of Uberrimae Fidei in Contract Law]~ Uberrimae fidei contracts are contracts where law imposes upon the parties the duty of making a full disclosure of all material facts. continued-

Some Implied Conditions~

Condition as to title Sale by description Sale by sample Sale by sample as well as by description Condition as to fitness or quality Note:
[For the rules regarding Implied Conditions, please see the examples from: Page 213-216, Sen & Mitra, 25th Edition (2006)].

Transfer of Ownership Doctrine of Passing of Risk~

Sec-26 of Contract Act states that~ Goods remain at the sellers risk until the ownership is transferred to the buyer. After the ownership has passed to the buyer, the goods are at the buyers risk whether delivery has been made or not. Risk follows ownership

(i) Where delivery has been delayed through the fault of either the buyer or the seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault. (ii) The parties may agree that the risk will pass at a time different from the time when ownership passed.

Transfer of

Title by non-owner

The general rule is that only the owner of the goods can sell the goods. No one can convey to a transferee a better title than he himself has. If a person transfers articles not belonging to him, the transferee gets no title.

This principle is expressed by the latin phrase, Nemo quod qui non habet, which means none can give who does not himself possess.

Consequences of breach of Contract of Sale The Sale of Goods Act gives the following rights to the aggrieved parties when there is a breach of contract of sale of goods~

Sellers Remedies~

i) Sellers Lien The unpaid seller of goods, who is in possession of them, is entitled to retain possession until payment or tender of the price.
ii) Stoppage in Transit When the buyer of goods become insolvent, and the goods are in course of transit to the buyer, the seller can resume possession of the goods from the carrier. iii) Resale The unpaid seller who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer can resell the goods.

iv) Suit for Price Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. v) Suit for Damages When the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. vi) Claim for Interest & Special Damages The seller may recover interest or special damages in any case where by law interest or special damages may be recoverable.

Buyers Remedies~
Damages for Non-delivery Specific Performance Remedy for breach of Guarantee/ Warrantee Repudiate/Reject the Contract

Negotiable Instrument Act, 1881


What is Negotiable Instrument......?

Defn: Documents of a certain type, used in commercial transactions and monetary dealings, are called Negotiable Instrument. In other words, Negotiable means transferable by delivery and Instrument means a written document by which a right is created in favor of some person. The term negotiable, literally means the document transferable by delivery In English law, a negotiable instrument is one in which, the true owner could transfer, the contract or engagement contained therein by simple delivery of the document.

Types of


(i) Promissory Note (ii) Bill of Exchange (iii) Cheque i)Promissory note
A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to order of a certain person, or to the bearer of the instrument. The person who makes the promise to pay is called the Maker. He is the debtor and must sign the instrument. The person who will get the money (the creditor) is called Payee.

ii)Bill of Exchange

A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. i.e....... (i) Bankers Draft- If outside Dhaka (ii) Pay Order- If in side Dhaka (iii)Travellers Cheque The maker of a bill of exchange is called the Drawer. The person who is directed to pay is called the Payee. When the payee has custody of the bill, he is called the Holder. It is the holders duty to present the bill to the drawee of his acceptance. The drawee signifies his acceptance by signing on the bill. After such signature the drawee becomes the Acceptor.

iii) Cheque A cheque is a bill of exchange drawn upon a specified banker and payable on demand. Cheque are of 2 types~
(i) Open Cheque (ii) Crossed/Accounts Payee Cheque


Promissory Note Vs Bill of Exchange~

The difference between promissory note and bill of exchange are as follows~
(i) Number of Parties: In a promissory note there are 2

parties- the maker and the payee. In a bill of exchange there are 3 parties-the drawer, the drawee and the payee.
(ii) Promise to Order: In a promissory note there is a promise

to pay. In a bill of exchange there is an order to pay.

(iii) Acceptance: A promisory note is signed by the person

liable to pay; therefore, no acceptance is necessary. A bill of exchange, except in certain cases, requires to be accepted by the drawee before it is binding upon him.
(iv) Notice: In case of non-payment or non-acceptance of a

bill, notice must be given to all persons liable to pay. This is called the notice of dishonor. In case of promissory note, notice of dishonor to the maker is not necessary.


Bill of Exchange Vs Cheque~

The difference between Bill of exchange and Cheque are as follows~ (i) A bill of exchange can be drawn upon any person, including bank. A cheque can be drawn only upon a bank. Thus every cheque is a bill of exchange but every bill of exchange is not a cheque. (ii) Except under certain specified circumstances, a bill of exchange requires acceptance. A cheque does not require any acceptance. (iii) A cheque is always payable on demand. The acceptor of a bill of exchange is allowed a grace period of 3 days, after the maturity of the bill, to make the payment. (iv) If a bank fails to pay a cheque, it is not necessary to give notice of dishonor to the drawer to make him liable to compensate the payee. In case of bill of exchange, it is necessary to give notice of dishonor, except in certain special cases.

Note: [In Promissory Note & Cheque; Notice to the Maker not necessary, But in Bill of Exchange; Notice to the Maker is must].

Does Promissory Note need acceptance........?


No........, But a bill of exchange is said to be accepted

when the drawee puts his signature on it, thereby acknowledging his liability under the bill.

Mode of Acceptance The usual mode of acceptance is writing the word accepted across the bill and signing under it. Writing the word accepted is not essential but the signature is. The signature may be put anywhere, on the face of the bill or on the back of it. Type of Acceptance Acceptance may be classified either~ i) General: Acceptance is general when Acceptor accepts liability to pay the amount mentioned in the bill in full, without any conditions or limitation. ii) Qualified: Acceptance is qualified when Acceptor accepts liability to pay the amount mentioned in the bill in full, with some conditions or limitation.

Dishonor of a


Mode of Dishonor~ A negotiable instrument may be dishonored in 2 ways:

i) by non-acceptance ii) by non-payment

Only bills of exchange can be dishonored by non acceptance, since bill requires acceptance. On the other hand, Promissory note & Cheque can be dishonored by non-payment. Consequence of Dishonor~ - Notice (where necessary..) - Sue for damage - File a criminal case under Sec-138 of Negotiable Instrument Act, 1881. [ This is a bailable offence; punishment is up to 1 year]