Question

1.State and explain 5 classifications of contracts

2.Discuss the prerequisites for the creation of an agency by necessity and how an agency relationship can be terminated by law

Answer 1

QUESTION 1).

Contract is an agreement enforceable by law. Between two or more parties for the doing or not doing of something specified.Contracts can also be classified according to performance. A contract can be either executed or executor. An executed contract—is where one party has performed all that is required to be done according to the contract. For example, Alan delivers one tonne of wood to Brian. Alan has performed his part of the contract, now it remains for Brian to pay the price. An executor contract—This is a contract where both parties still have obligations to perform under the contract.

Classification of contract

Contracts can be classified into five broad divisions namely

1. The method of formation of a contract
2. The time of performance of contract
3. The parties of the contract
4. The method of formalities of the contract
5. The method of legality of the contract

1. The method of formation of a contract

Under the method of formation of a contract may be three kinds

• Ø Express contract
• Ø Implied contract
• Ø Quasi contract

Express contract: Express contract is one which expressed in words spoken or written. When such a contract is formal, there is no difficulty in understanding the rights and obligations of the parties.

Implied contract: The condition of an implied contract is to be understood form the acts, the contract of the parties or the course of dealing between them.

Quasi contract: There are certain dealings which are not contracts strictly, though the parties act as if there is a contract. The contract Act specifies the various situations which come within what is called Quasi contract.

2.The time of performance of contract

Under the method of the time of performance of contract may be two kinds

• Ø Executed Contract
• Ø Executory Contract

Executed Contract: There are contracts where the parties perform their obligations immediately, as soon as the contract is formed.

Executory Contract: In this contract the obligations of the parties are to be performed at a later time.

3. The parties of the contract

Under the method of the parties of the contract may be two kinds

• Ø Bilateral Contract
• Ø Unilateral Contract

Bilateral Contract: There must be at last two parties to the contract. Therefore all contracts are bilateral or multilateral.

Unilateral Contract: In certain contracts one party has to fulfill his obligations where as the other party has already performed his obligations. Such a contract is called unilateral contract.

4. The method of formalities of the contract

Under the method of the method of formalities of the contract   may be two kinds

• Ø Formal contract
• Ø Informal contract

Formal contract: A formal contract is a contract which is formatted by satisfied all the essentials formalities of a contract.

Informal contract: An informal contract is a contract which is failed to satisfy all or any of the essentials formalities of a contract.

5.The method of legality of the contract

Under the method of the method of legality of the contract may be five kinds

1. Valid Contract
2. Void Agreement
3. Void able Contract
4. Unenforceable Agreement
5. Illegal Agreement

Valid Contract: An agreement which satisfied all the essential of a contract and which is enforceable through the court is called valid contract.

Void Agreement: An agreement which is failed to satisfied all or any of the essential element of a contract and which is not enforceable by the court is called void agreement. An agreement not enforceable by law is said to be void. A void agreement has no legal fact. It confers no right on any person and created no obligation.

Example: An agreement made by a minor. Void able Contract: An agreement which is enforceable by law at the open of one or more parties of the contract but not at the open of the other or others is a void able contract.

A void able contract is one which can be avoided and satisfied by some of the parties to it. Until it is avoided, it is a good contract.

Example: contracts brought about by coercion or undue influence or misrepresentation or fraud.

Unenforceable Agreement: An Unenforceable Agreement is one which cannot be enforcing in a court for its technical and formal defect.

Example: (1) An agreement required by law to register but not resisted. (2) An agreement with not satisfied stamped.

Illegal Agreement: An illegal agreement is one which is against a law enforcing in Bangladesh.

Example: An agreement to compiled madder.

QUESTION 2).

Agency by necessity:

Agency by necessity is a type of legal relationship in which one party can make essential decisions for another party. The courts recognize agency by necessity during an emergency or urgent situation under which the beneficiary is unable to provide explicit authorization. Under such circumstances, those granted agency must act for the sole benefit of the beneficiary. In finance, agency by necessity often takes the form of replacing an individual’s investment or retirement decisions

An agency of necessity may be created if the following three conditions are met:

a) It is impossible for the agent to get the principal’s instruction.

b) The agent’s action is necessary, in the circumstances, in order to prevent loss to the principal to prevent them from rotting.

c) The agent must have acted in good faith.

In an urgent situation, an agent has authority to act in the best interest for the purpose of protecting his principal from losses.

Understanding Agency by Necessity

Emergency situations often lead to agency by necessity in the eyes of the court. For example, if an individual is sick and unable to make a critical investment or retirement decision, agency of necessity would allow an attorney, parent or spouse to make decisions on behalf of the incapacitated party.

Agency by necessity becomes important in wealth management. For example, many wealth managers are involved in the creation of wills, trusts, and overseeing inheritances of wealth from one generation to the next. If a family member in possession of or who is an agent of the family’s wealth becomes incapacitated in an accident or is ill, another close family member of similar capabilities and understanding of the family finances may take over as an agent of necessity.

At times this can become fraught, however, particularly in cases of high net worth individuals or wealthy families that have to make decisions about wealth distribution for future generations. Family members and additional stakeholders may take issue with decisions that the agent by necessity makes.

Agency by Necessity and Estate Planning

Although many conduct their estate planning before becoming incapacitated, at times these tasks may be given to an agent by necessity. Estate planning entails a variety of critical tasks such as the bequest of assets to heirs and the settlement of estate taxes. Most estate plans require the help of an attorney. Estate planning can also take into account the management of an individual’s properties and financial obligations. If the individual owes debts and is not of sound mind to pay them, an agent by necessity may step in to figure out a play for repayment.

The assets that could comprise an individual’s estate include houses, cars, stocks, bonds, and other financial assets, paintings and other collectibles, life insurance, and pensions. These must be distributed as the individual has chosen after passing. In addition to preserving family wealth and providing for surviving spouse and children, many individuals will undertake serious estate planning to fund children or grandchildren’s education or leave their legacy behind to a charitable cause.

Specific estate planning tasks could include but are not limited to:

• Writing a will
• Limiting estate taxes by setting up trust accounts in the name of beneficiaries
• Establishing a guardian for living dependents
• Naming an executor of the estate to oversee the terms of the will
• Creating/updating beneficiaries on plans such as life insurance, IRAs and 401(k)s
• Setting up funeral arrangements

TERMINATION OF AGENCY:

Different ways by which an agency can be terminated:-

• An agency created for a specific purpose as well as an agency created by a power of attorney is terminated once the particular purpose for which it was created was accomplished. After the termination of the agency, the agent is free of any fiduciary duty to the principal arising from the agency relationship.
• The parties can terminate the agency by mutual agreement. An agency relationship requires the mutual assent of the parties and both the parties have the power to withdraw their assent. An agency may not be terminated by the act of one of the parties and should be done mutually. The mutual abandonment of an agency is a question of fact since it is a matter of intention of both the parties. The court will ascertain such intent from the surrounding facts and circumstances of the transaction as well as implied from the conduct of the parties[viii].
• An agency contract may be canceled on the basis of an express stipulation in the contract. In such a case, the parties will have a right of cancellation at the will of either party or upon the happening of a contingency or the nonperformance of some expressed condition. The principal cannot cancel such an agreement at will so long as the agent fulfills his/her part of the agreement. However, the principal can cancel the agency contract for any justifiable cause.
• An agency may be revoked at the will of the principal when an agency is not coupled with an interest, and no third party’s rights are involved. The party terminating the agency must show good cause. Thus, when A enters into a contract whereby B is to provide A for a stated period of time with goods or services, which both parties realize are for use in a particular enterprise owned by A, in the absence of a specific clause so providing, A cannot escape his obligations under that contract by voluntarily selling his interest in the enterprise before the expiration of the expressed contract term.
• A principal may unilaterally cancel an agency without incurring liability for breach of contract under the following instances: misconduct or habitual intoxication of the agent which interferes with his/her employment, the refusal of the agent to obey reasonable instructions or to permit the principal to make a proper audit of his/her accounts, serious neglect or breach of duty by the agent, dishonesty or untrustworthiness of the agent, the agent’s failure to pay an indebtedness owing to the principal, disloyalty of the agent like using the agency to make secret profits.
• Ordinarily, an agent may renounce the agency relationship by expressly notifying the principal, either orally or in writing. An agent’s cessation of all relations with the principal and abandonment by the agent may be treated as a renunciation. However, mere violation of instructions by the agent will not amount to renunciation.