This Contingent & Quasi Contracts – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.
Contingent & Quasi Contracts – CA Foundation Business Law Study Material
Define a contingent contract and explain its essentials.
“A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen” – [Section 31]. Contracts of insurance, indemnity and guarantee are examples of contingent contracts. For this purpose collateral event means an event which is, “neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise”.
ESSENTIALS OF CONTINGENT CONTRACTS
- The performance of such contracts depends on a contingency i.e., on the happening or non-happening of the future event.
- The event must be collateral ie., incidental to the contract. Thus the event must not be a part of reciprocal promises forming the contract.
- The event must be uncertain. If the event is bound to happen the contract is due to be performed in any case then it is not a contingent contract.
- The contingent event should not be the mere will of the promisor.
What are the rules regarding contingent contracts?
Sections 32 to 36 of the Contract Act contain certain rules regarding the contingent contract, they are summarised below:
Sec. 32. Contracts dependent on the happening of a future uncertain event:
Contracts contingent upon the happening of a future uncertain event, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.
Example: Agrees to pay B a sum of money if a certain ship returns. The Contract can be enforced only where the ship returns. If the ship sinks, the contract becomes void.
Sec. 33. Contracts dependent on the non-happening of an uncertain future event: Contracts contingent upon the non-happening of an uncertain future event, can be enforced when the happening of that event becomes impossible and not before-illustration: 1. A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks. If the ship returns the contract becomes void.
Sec. 35(1) Contracts dependent on the happening of an event within a fixed time: Contracts contingent upon the happening of an event within a fixed time become void if, at the expiration of the fixed time, such event has not happened or if, before the time fixed, such event becomes impossible.
Illustration: 1 A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within a year, and becomes
void if the ship is burnt within a year (since the event becomes impossible).
Sec. 35(2). Contracts dependent on the non-happening of an event within a fixed time: Contracts contingent upon the non-happening of an event within a fixed time may be enforced by law when the time fixed has expired and such event has not happened, or before the time fixed has expired, if it becomes certain that such event will not happen.
Illustration: 1 A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within a year.
Sec. 34 Contracts dependent on the future conduct of a person acting in a particular way: If a contract is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.
In other words, if a promise depends on the act of a third party, it will become void should such a third party refuse to do the act or if he incapacitates himself from doing it. For e.g. S sells goods to B and B promises to pay the price after C has fixed it. If C refuses to fix the price or if he dies before fixing it, the agreement becomes void.
Illustration: 1 A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible although it is possible that D may die and that C may afterward marry B.
Sec. 36 Contracts dependent on an impossible event: Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
What is a Quasi Contract? What are the types of Quasi Contracts, as provided under the Indian Contract Act, 1872?
A quasi-contract is similar to a contract. Just like a contract it also creates legal obligations. But the legal obligations created by quasi-contract do not rest on any agreement but are imposed by law. It is, therefore, contractual in law, but not in fact. It is an obligation which the law creates in the absence of any agreement when the acts of the parties or others have placed in the possession of one person, money or its equivalent, under such circumstances that in equity and good conscience he ought not to retain it, and which ex-auto Bono (in justice and fairness) belongs to another.
Quasi-contracts are based on principles of equity, justice, and good conscience. They aim at prevention of “unjust enrichment” i.e. no man shall be allowed to enrich himself at the cost of another.
Types of Quasi Contracts:-
Sections 68 to 72 of the Contract Act deals with five different types of quasi-contracts. In each of these cases, there is no real contract between the parties, but due to peculiar circumstances in which they are placed, the law imposes in each of these cases a contractual liability:-
1. Claim for necessaries supplied to persons incapable of contracting (section 68)
“If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
2. Right to recover money paid for another person (Section 69):
A person who has paid a sum of money that another is obliged to pay, is entitled to be reimbursed by that other person provided the payment has been made by him to protect his own interest.
Conditions: The following are the conditions mentioned in sec. 69:
- The payment made should be bona fide for the protection of one’s interest.
- The payment should not be a voluntary one.
- The payment must be such as the other party was bound by law to pay.
3. Obligation of a person enjoying benefits of the non-gratuitous act (Section 70):
“Where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered”.
It thus follows that for a suit to succeed, the plaintiff must prove:
- that he had done the act or had delivered the thing lawfully,
- that he did not do so gratuitously, and
- that the other person enjoyed the benefit.
4. Responsibility of a finder of goods (Section 71)
“A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee”.
1. A person who finds goods and takes possession of it is responsible as a bailee.
2. That is, he is liable –
- to try and find out the true owner and
- to take due care of the property (section 151)
3. Finder is entitled to a lien until paid compensation, but cannot file a suit to recover such compensation.
4. Finder is entitled to possession against all except the true owner.
5. When the owner declares reward, the finder can sue for reward.
6. Right of re-sale: If the owner is not found or if he refuses to pay lawful charges, the finder may sell-
- When the thing is in danger of perishing or losing the greater part of its value.
- When the lawful charges amount to two-thirds of its value.
5. Liability for money paid or things delivered by mistake or under coercion (Section 72):
“A person to whom money has been paid, or anything delivered by mistake or under coercion must repay or return it (Sec. 72) ”.
Differentiate between Contingent Contracts and Wagering Agreements.
Difference between contingent contract and wagering agreement:
|Wagering Agreements||contingent contract|
|A wagering agreement is void.||A contingent contract is valid.|
|A wagering agreement consists of reciprocal promises.||A contingency contract may not contain reciprocal promises.|
|In a wagering agreement, the parties have no interest in the subject matter of the contract.||In a contingent contract, either party may have interest in the subject matter of the contract.|
|In a wagering agreement, the future event is the sole determining factor.||In a contingent contract, the future event is only collateral and incidental.|
|Every wagering agreement is of a contingent nature.||Every contingent contract is not of a wagering nature.|
Z rent out his house situated at Mumbai to W for rent of ₹ 10,000 per month. A sum of ₹ 5 lakh, the house tax payable by Z to the Municipal Corporation being in arrears, his house is advertised for sale by the corporation. W pays the corporation, the sum due from Z to avoid legal consequences. Referring to the provisions of the Indian Contract Act, 1872 decide whether W is entitled to get the reimbursement of the said amount from Z.
Hint: Quasi Contract; right to recover money paid for another; W is entitled to reimbursement from Z since he is an interested party.
A agrees to pay B ₹ 5,000 if he marries C. C dies before the marriage. Can B recover the amount?
Hint: No, the agreement has become void due to death.
A supplied necessaries of life to the wife of a lunatic. Can he get the payment? If yes, how?
Hint: Yes, out of the property of the lunatic, if any. [Claim for necessaries of life supplied to an incompetent person or his dependent.]
A promises to pay B ? 1 lakh if B’s ship does not return. When can this promise be enforced?
Hint: If the ship is destroyed or sunk, since the contract is contingent upon non-happening of a specific future uncertain event [ie. non-returning of ship]
Y holds agricultural land in Gujarat on a lease granted by X, the owner. The land revenue payable by X to the Government being in arrear his land is advertised for sale by the Government. Under the Revenue law, the consequence of such a sale will be termination of lease. Y, in order to prevent the sale and the consequent termination of his own lease, pays the Government, the sum due from X. Referring to the provisions of the Indian Contract Act, 1872 decide whether X is liable to make good to Y, the amount so paid?
Hint: X is liable to pay to Y the amount paid by Y to the Government.