Introduction to Law of Contract

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Introduction to Law
of Contract
Preeti Kana Sikder
Lecturer, Department of Law & Justice
Jahangirnagar University

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The Contract Act,
1872
ACT NO IX OF 1872

Section 2: Interpretation Clause
In this Act the following words and
expressions are used in the following
senses, unless a contrary intention appears
from the context –
(a) 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;

Section 2: Interpretation
Clause
 (b) When the person to whom the
proposal is made signifies his assent
thereto, the proposal is said to be
accepted. A proposal, when accepted
becomes a promise.
 (c) The person making the proposal
is called the ‘promisor’ and the
person accepting the proposal is
called the ‘promisee’:

Clause
(d) When, at the desire of the
promisor, the promisee 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:

Clause
(e) Every promise and every set of
promises, forming the consideration for
each other, is an agreement:
(f) Promises which form the consideration
or part of the consideration for each
other are called reciprocal promises:
(h) An agreement enforceable by law is a
contract:

Sir Guenter Heinz Treitel
“A contract is an
agreement giving
rise to obligations
which are
enforced or
recognised by
law.”

The Objective Principle
Standards of behaviour
Principle of Freedom of Contract
Qualifications (A clause or condition
which limits something)

 A person is bound whatever his real
intention may be, if a reasonable man would
believe that he was assenting to the terms
proposed by the other party and the other
party upon that belief enters into a contract
with him.
 Based on the needs of commercial
convenience.
Objective Principle

 Contracting parties are normally expected
to observe certain standards of behavior
which are implied by law.
 The parties hereby become bound by many
duties to which they have not expressly
agreed to and of which they may have never
thought
imposed on the parties

Standards of behaviour are
the result of terms implied
by law into certain types of
contract
imposed on the parties

Agreements are not the
sole factor which
determines legal effects of
a contract once it is shown
to exist

 Judges took the view that persons
of full capacity should in general
be allowed to make what contracts
they liked.
 The law only interferes on certain
specific grounds:
Misrepresentation
Undue influence
Illegality
Freedom of Contract

Standard Form of
Contracts
The process of mass production
and distribution has introduced
some uniform documents.
These contracts must be accepted
by all who deal with large scale
organisations.

Lord Diplock in Schroeder Music
Publishing Co Ltd v Macaulay,
1974
“Standard form of contracts are of two
kinds. The first, of very ancient origin, are
those which set out the terms on which
mercantile transactions of common
occurrence are to be carried out…The
standard clauses in these contracts have
been settled over the years by negotiation
by representatives of commercial interests
involved and have been widely adopted
because experience has shown that they
facilitate the conduct of trade…”

1974
“The other kind of standard form of
contract…is the result of the
concentration of particular kinds of
business in relatively few hands…The
terms of this kind of standard form of
contract have not been the subject of
negotiation between the parties to it, or
approved by any organisation
representing the interests of the weaker
party.”

1974
“They have been dictated by that party
whose bargaining power, either
exercised alone or in conjunction with
others providing similar goods or
services, enables him to say: ‘If you
want these goods or services at all, these
are the only terms on which they are
obtainable. Take it or leave it.”

It is arguable that, a customer
who contracts on such
standard terms has them
imposed on him, and does not
really ‘agree’ to them at all
Debate on Standard Form
of Contracts

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Inequality of
Bargaining Power
Inroads in the principle of
freedom of contract:
Contracts should be treated
differently where there is
inequality of bargaining
power

 Under some statutes, terms are
compulsorily implied into contracts
and cannot be excluded by contrary
agreement
Imbalance or inequality of
bargaining power

 There are cases where the law
plays so large, and the agreement
of the parties so small, that it
becomes doubtful whether the
relationship can be called
contractual.
 Example: Marriage
Doubtful cases

 Parties can be to some extent
restricted from deciding whether
or not to enter into the
relationship of a contract
Freedom not to contract

 Rules relating to offer and acceptance
 Rules limiting contractual capacity
 Rules relating to mistake
 Rules relating to contents of a contract
 Rules relating to performance
 Rules relating to breach
Agreement and legal
effects or enforceability

Put injured person into
the position in which he
would have been if the
contract had never been
made
Put the injured party into
the position in which he
would have been if the
contract had been
performed
Remedies

 Compensate the injured party,
not because he is worse off than he
was before the contract was made,
but because the other party has
failed to make him better off
The result of awarding
damages or remedies?

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Promotes stability and
provides the legal
framework required for
commercial relations
Protecting the
expectation
interest of injured
party

Introduction to Law of Contract

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