The Law of Contract

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BASIC Bank Limited
Head Office, Dhaka.

Md. Hasan Imam

Board Division


The law of contract is the foundation upon which the superstructure of modern business is built. It is frequent that in business transactions quite often promises are made at one time and the performance follows later. The law of contract is applicable not only in business community, but also to others. Everyone of us enters into a number of contracts almost everyday, and most of the time we do so without even realizing what we are doing from the point of law.

Object and Scope:

The law of contract deals with agreements which can be enforced through courts of law. The law of contract is the most important part of commercial law because every commercial transaction starts from an agreement between two or persons.

The object of the law of contract is to introduce definiteness in commercial and other transactions.

According to Salmond, a contract is ‘an agreement creating and defining obligations between the parties’.


The Contract Act, 1872 lays down certain general rules regarding contracts. The Act is not exhaustive. There are other Acts relating to particular types of contracts e.g., the Negotiable Instruments Act, 1881; the Transfer of Property Act, 1882 etc.


The Contract Act, 1872 came into force on the 1st day of September, 1872.

The Contract Act, 1872 is based mainly on English Common Law which is to a large extent made up of judicial precedents because there is no separate Contract Act in England.

Some Definitions:

S.2(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:

S.2(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:

S.2(c) : The person making the proposal is called the “promisor” and the person accepting the proposal is called the “promisee”:

S.2(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:

S.2(e) : Every promise and every set of promises, forming the consideration for each other, is an agreement:

Definition of Contract:

Section 2(h) of the Contract Act, 1872 defines contract as ‘an agreement enforceable by law is a contract’.

Therefore, in a contract there must be (1) an agreement and (2) the agreement must be enforceable by law.

An agreement comes into existence whenever one or more persons promise to one or others, to do or not to do something. As per section 2 (e), ‘every promise and every set of promises, forming the consideration for each other, is an agreement’.

Essential elements of a valid contract:

Section 10 of the Contract Act lays down the fundamentals of a valid contract. According to Section 10, ‘all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void’.

An agreement becomes enforceable by law when it fulfils certain conditions. These conditions, which may be called the essential elements of a contract, are explained below:

01.Offer and Acceptance: There must be a lawful offer by one party and a lawful acceptance by the other party or parties. Here, ‘lawful’ implies that the offer and acceptance must conform to the rules laid down regarding offer and acceptance. 02.Intension to create legal relationship: There must be an intension (among the parties) that the agreement shall result in or create legal relations.

03.Lawful consideration:...
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