Contract Act, 1872 – The Legal Framework of Agreements in Bangladesh
The Contract Act, 1872 is a cornerstone of commercial and civil law in Bangladesh. It lays down the rules regarding the formation, execution, and enforcement of contracts between individuals and organizations.
What is a Contract?
According to Section 2(h) of the Act, “A contract is an agreement enforceable by law.” Contracts are the basis of all business and personal agreements with legal obligations.
Essential Elements of a Valid Contract
- Offer and Acceptance: One party must make an offer, and the other must accept it.
- Lawful Consideration: Each party must provide something of value in return.
- Free Consent: Consent must not be caused by coercion, fraud, misrepresentation, undue influence, or mistake.
- Capacity of Parties: Parties must be competent (e.g., age, sound mind).
- Lawful Object: The object of the contract must not be illegal or immoral.
Types of Contracts under the Act
- Express and Implied Contracts: Express through words; implied by conduct.
- Void and Voidable Contracts: Void contracts have no legal effect; voidable contracts can be canceled by one party.
- Contingent Contracts: Dependent on the occurrence of a future event.
- Quasi-Contracts: Legal obligations similar to contracts, even if no agreement exists.
Contract Formation Process
The Act defines a systematic process of contract formation:
- Proposal (Offer)
- Acceptance of Proposal
- Consideration
- Creation of Legal Obligation
Free Consent and Its Importance
A contract must be entered into freely. Section 10 of the Act explains that consent is not free when caused by:
- Coercion (Section 15)
- Undue Influence (Section 16)
- Fraud (Section 17)
- Misrepresentation (Section 18)
- Mistake (Section 20, 21, 22)
Performance of Contracts
The Act outlines rules for contract performance:
- Time and place of performance
- By promisor or agent
- Discharge by performance, agreement, breach, impossibility
Breach of Contract
A breach occurs when a party fails to perform. Remedies include:
- Compensation (Section 73)
- Rescission of contract
- Specific performance
Importance in Banking and Business
- Ensures validity of loan agreements, mortgages, and guarantees.
- Provides legal remedy for breach of commercial terms.
- Helps enforce service contracts, vendor terms, and client agreements.
Conclusion
The Contract Act, 1872 ensures that all commercial transactions and personal agreements are governed under fair legal obligations. It is crucial for bankers, business professionals, and legal practitioners in Bangladesh to have sound knowledge of this act.
