A contract is a legally binding agreement that establishes, specifies, and governs the rights and obligations of the parties. Contracts typically involve the transfer of goods, services, money, or the promise to transfer any of these at a later date. Section 2(h) of the Bangladeshi Contract Act of 1872 defines a “Contract” as “A legally enforceable agreement.”
Contract Types in Bangladesh and its components
The Bangladeshi Contract Act of 1872 specifies the conditions that must be met for a contract to be recognized as valid.
These consist of:
- Offering and Acceptance
- Free permission
- Legitimate consideration
These requirements are intended to ensure that both parties to a contract are of legal age, possess the requisite capacity, and are acting voluntarily and lawfully. The contract must also include an offer and a method for accepting it that can be verified.
In other words, any legally enforceable agreement falls under the definition of a contract. Contracts are subdivided into additional categories based on their function and requirements.
According to the Bangladeshi Contract Act, there are four broad categories for the various types of business contracts. According to formation, nature, execution, and validity, these are the primary categories of contracts.
Contracts governed by the characteristics of the parties’ relationship and the considerations they exchanged
Contrats based on validity
Each of these contract categories is subdivided into additional categories.
Formation Based Agreements
These types of contracts are divided into four subcategories based on their formation method:
Implied Contracts –
An implied contract is a legally enforceable obligation that results from the actions, behavior, or circumstances of one or more parties to a contractual agreement.
Express Contracts –
An express contract is one in which all terms are agreed upon by the parties at the time the agreement is made verbally or in writing.
The Quasi-Contract is a contract with a retrospective nature between two parties. In this type of contract, there are no previous ties between the parties. It is created by a judge to rectify situations in which one party gains something at the expense of the other.
E-contracts are contracts that are created using electronic, cyber, or electronic data exchange methods. Email, the telephone, and, more recently, digital signatures are all instruments that can be used to create an electronic contract.
Agreements Based On Character & Consideration
This category is assigned to contracts whose nature is diverse and unique to the parties. In general, they can be categorized as
Unilateral Contracts –
In these types of contracts, one party agrees to pay a specified sum only after the occurrence of a specified event. Such contracts can only be executed if the promise made by the other party is kept.
Bilateral Contracts –
These are contractual agreements in which both parties reach a mutual understanding. Thus, the parties involved are identified, and the contract is formed through the exchange of proposals and agreements. These contracts, also known as two-sided contracts, are the most prevalent type of contract used today.
Contracts With a Focus on Time:
These are contracts that can be executed according to schedule. For contracts based on execution, the timeline for the fulfillment of the commitment must be taken into account. Contracts classified according to time periods can be divided into the following categories:
Executory Contracts –
A contractual agreement in which both parties have ongoing performance obligations or unfulfilled responsibilities. The majority of leases and contracts for the sale of goods in which the buyer has not made the required payment and the seller has not delivered the goods are executory contracts.
Executed Contracts –
An executed contract is a signed agreement that establishes a business relationship between two or more parties. Once the contract has been fully executed, each party promises to uphold the legal obligations outlined in the agreement.
Contracts Based on Validity
These types of contracts are based on legal consequences. The following legal contracts fall under this category:
According to the definition of a valid contract, it is an agreement that is legally binding. To be enforceable, a contract must comply with section 10 of the Bangladeshi Contracts Act of 1872.
Section 10 of the Bangladeshi Contracts Act of 1872 states that all agreements are considered contracts if they are freely entered into by parties with the legal capacity to do so, if they are formed for legal consideration, if they have a legal purpose, and if they are not expressly disregarded by this declaration.
Void Contracts –
The Bangladeshi Contracts Act of 1872, section 2(j), defines a void contract. A void contract was once a valid contract, but due to modifications made to some of its terms, it is now null and void. A contract that is null and void contains no obligations or rights and cannot be enforced by any party. Even if both parties are in agreement, these contracts are unlawful and cannot be enforced.
Voidable Contracts –
A contract is said to be voidable if it is legally enforceable at the option of one or more parties but not at the option of the other parties. Simply put, at least one party must be bound by the terms of the contract.
The other party, who may be a minor or temporarily incapable of entering into a contract for other reasons, is not bound by the terms and is free to reject or accept them. The agreement is null and void if either party decides to withdraw.
Unenforceable Contracts –
A contract is unenforceable if it does not meet the necessary legal requirements. A contract of this type can be enforced after these requirements, which typically take the form of technical errors, are met.
Illegal Contracts –
Section 23 of the act states that a contract may be void or illegal. Illegal contracts are those that violate a law or conflict with public policy. Illegal contracts are distinct from void contracts. The law only prohibits courts from enforcing these types of contracts, as opposed to illegal contracts, whose consideration is prohibited.
Contracts in Project Administration
Without contracts outlining the obligations between one or more parties, a project is incomplete. Types of project management agreements include:
Fixed-Price Contracts –
Fixed-price contracts are used when the criteria for the work are understood and the scope of the work is clearly specified. Once the agreed-upon scope of work has been adequately specified, the vendor is expected to provide a fixed-price quote.
When preparing a fixed-price quotation, the seller must be aware of both the project’s requirements and any potential risks that may arise. Therefore, the seller must be competent and mature enough to warrant a fixed-price transaction.
Time-and-Material Contracts –
Time-and-material contracts are a common type of contract used for the purchase of common goods. In the majority of instances involving time-and-materials contracts, the organization will select its preferred vendor based on its capacity and experience. The supply price will then be negotiated and paid for.
Cost Reimbursable Contracts –
In a cost-reimbursable contract, the buyer is responsible for both the seller’s actual expenses and a surcharge or profit. Typically, these types of contracts involve two separate payments for two components. Typically, the charged amount is predetermined, whereas actual expenses are reimbursed as they occur.
The aforementioned contract types can also be subdivided into categories of services contract types. A service contract is an agreement between a business and its clients or customers. This document describes the terms and conditions of the services the company will provide.
Types Of Service Arrangements
In addition to those described above, the following contract types exist in the services industry:
A Not To Exceed (NTE) contract is a hybrid of a time-and-materials contract and a fixed-price contract. These contract arrangements, also known as time-and-materials with a limit, aim to reduce the client’s risk exposure even further than a fixed-price contract.
Retainer Agreements –
Retainers appear in a variety of professional services contracts, such as consulting agreements. When short turnaround times are required and the completion time of the work is unknown, retainers are frequently used in the context of professional services.
The fundamental tenet of a retainer-based agreement is that the client will pay a predetermined sum in advance in exchange for receiving services within a predetermined time frame.
Recurring Subscription Contracts –
The primary product of a professional services firm is rapidly evolving to include subscription-based services. Depending on the services a PSO provides, a subscription model may be effective. Under this type of arrangement, clients will pay a monthly fee for recurring services.
Managed Services Contracts –
Increasingly, conventional professional services organizations and consulting firms are utilizing managed services contracts. In the past, managed service providers (MSPs) offered managed services agreements that centered on the delivery of a specific level of services over an extended period.
Management of the Contract Lifecycle: A One-Stop Solution
The journey of a contract, from its initial drafting to its final execution, is referred to as its lifecycle. Management of the oversight and optimization of contract lifecycles is known as contract lifecycle management.
A “life cycle” in the context of contracts is a model used to comprehend and classify a contract’s various stages. The contract lifecycle journey begins with the submission of a contract request and includes all significant phases of a contract, including execution, tracking, intelligence, and renewal.
The procedures involved in automated contract management include:
The use of clm software
A contract is requested and assigned to a member of the legal department. Contract requests are monitored using an intelligent dashboard.
Clause and template libraries are utilized to create legally enforceable contracts.
After the contract has been approved, the parties are invited to negotiate the terms of the contract digitally. Parties make and accept negotiating suggestions, and comment and suggestion histories are recorded to maintain transparency.
Utilizing digital signatures, the parties execute the agreement. A signature certificate is created, which can be used to validate the signers. The contract is then tagged and stored in a central repository that is searchable, where only authorized users can access it.
The contract is executed by both parties, and contract performance is monitored through the use of intelligent analytics and employed as a tool for risk management and enhanced decision making.
Renewal – Relevant users are notified via automated alerts when a contract is about to expire or is up for renewal.
Consequences of noncompliance:
If any of the above contracts are made in a format other than writing, the legal status of such contracts may be called into question. If the statutory requirement is that the contract be executed in a particular manner and that requirement is mandatory, there can be no doubt that the document must either be executed in that manner or not at all.
The contract is invalid if it is executed in violation of this requirement.
Given the cardinal rule, it should be noted that in some instances a contract may remain valid despite the fact that it violates a statute by not being in writing. In such a situation, if one party denies the existence of the contract, the other party would have a heavy burden to establish the existence of the contract and any alleged breach of its terms.
The following contracts must be stamped:
Numerous contracts must not only be in writing, but also be properly executed and stamped (although many of such instruments are absolved from being registered compulsorily). The Stamp Act of 1899 establishes the general stamp requirements for legal instruments (excluding pleadings).
The Stamp Act, among other things, specifies different types of stamps for different instruments, the procedure for affixing stamps, and the consequences for failing to comply with the stamp requirement. The following are some examples of instruments that must be executed with an appropriate stamp.
Contracts that require a Registered Deed:
It has been stated elsewhere in this article that although the Contract Act does not prescribe any form for the validity of a contract, it expressly states that the provisions of the Contract Act are subject to the provisions of other laws in force in Bangladesh requiring different contracts to be made in different forms.
The Registration Act, 1908, the Transfer of Property Act, 1882, amongst other statutes, provide guidelines as to what contracts are to be made by whom and in what form. Due to the fact that these guidelines are not self-explanatory in certain respects, the judiciary has been called upon on numerous occasions to intervene.
Consequently, a review of pertinent provisions of the aforementioned statutes and legal decisions thereon may be an appropriate method for determining which contracts are required to be registered. The following contracts fall under this category:
Non-testamentary instruments affecting real property interests:
Non-testamentary instruments that purport or operate to create, declare, assign, limit, or extinguish, in the present or future, any right, title, or interest, whether vested or contingent, to or in immovable property must be registered, per Section 17(1)(b) of the Registration Act of 1908.
The scope of this section has been greatly expanded by removing the phrase “of a value exceeding one hundred taka.” The effect of the amendment is that instruments falling under section 17 (1) (b) must be registered regardless of their monetary value.
Another aspect of this rule is that it is sufficiently broad to include not only instruments that create any right, title, etc., but also instruments that purport to create any right, title, or interest. The following instruments are deemed to fall within the scope of the preceding rule:
(a) Sales agreements for immovable property
(b) A document that gives a creditor the right to have an immovable property sold and to recover the money lent to him from the proceeds.
(c) A compromise document affecting immovable property
d) A “power of attorney” that creates a lien in favor of the done on the immovable property mentioned in the document.
e) Any transfer of real estate by a Muslim husband to his wife in lieu of dower.”
(g)Exchange deed pertaining to immovable property;
(h) A document imposing a lien on property
(i)A combination or era containing a contract for the sale of Iand-grown straw.
(j) A document granting a Hindu wife, in exchange for marriage, the right of residence and maintenance from the house’s rents.
(k) A “power of attorney” authorizing the done to collect the rents of an immovable property owned by the donor for the done’s benefit;
(l) The document itself that creates an interest in real estate, even though it contemplates the execution of another document;
(m) Deed for the transfer of a partner’s interest in a partnership firm that owns immovable property.
(n) A written release or receipt to relinquish any claim or interest in immovable property;
(o) Instruments that alter the terms of registered documents, etc.
Why should you hire Tahmidur Remura Wahid for your contractual needs and to safeguard your interests
Tahmidur Rahman Remura Wahid TRW Associates is a full-service law firm in Dhaka that provides all types of legal and financial services, including organization registration, obtaining the proper licenses, drafting contracts and notices, and providing annual compliances and litigation services.
Tahmidur Rahman Remura Wahid TRW Associates is comprised of competent Barristers and Advocates with expertise in multiple legal fields, allowing them to provide the required services to a high degree and allowing clients to acquire all necessary and supplementary legal services under one roof.
DHAKA: House 410, ROAD 29, Mohakhali DOHS
DUBAI: Rolex Building, L-12 Sheikh Zayed Road
LONDON: 1156, St Giles Avenue, Dagenham
24/7 Contact Numbers, Even During Holidays: