IPCC Paper 2  Business Laws, Ethics & Communication 

The Contract Act  1872 Unit 1 Part 6:  Contingent and Special Contracts

CA. Manish Dafria

Learning Objectives Contingent Contracts – What they are

Essentials of  a contingent contract Rules regarding enforcement of contingent  contracts Difference between contingent contract and  wagering contract Quasi Contracts – Meaning

Types of Quasi Contracts

Contingent Contracts:   Introduction

Contingent Contract An absolute  contract

• A contract may be‐

A contingent  contract

Contingent Contract • An “absolute contract” • A “contingent contract” is one in which the is a contract to do or promisor binds himself not to do something, if to perform the contract some event, collateral in any event. to such contract does or does not happen. (Sec. 31). Pratham agrees to sell his house  MNO Ltd. contracts to pay Rs.  50,00,000 if  R’s house gets  to  Tanu if he wins the court  destroyed by earthquake.  This is  case related with his house. This  a contingent contract.  is a contingent contract.

Contingent Contracts Some Typical types of Contingent Contracts are : • Contracts of Insurance • Contracts of Indemnity

Essentials of Contingent  Contract

3 Essentials of a Contingent Contract Its performance depends upon happening  or non happening of some event. The event must be uncertain. The event must be collateral.

3 Essentials of a Contingent Contract 1. Performance of a contingent contract depends upon happening or non‐happening of some event.

For Example Nishank promises to pay Rs. 10,00,0000 to the bank if his friend Shashank fails to repay the loan. Nishank shall be required to perform only when event of failure by Shashank happens.

3 Essentials of a Contingent Contract 2. The event must be uncertain. If the event is certain and the contract is bound to be performed in any case, it is not a contingent contract.

For Example Jai promises the contractor, who is constructing his house, to pay Rs. 50000 if the construction is completed before June. The event is completion of construction before June which may or may not happen.

3 Essentials of a Contingent Contract 3. The event should not be part of the contract but should be only collateral i.e. incidental to the contract. 

The event should be neither performance promised nor a consideration for a promise.

For Example When Raju hires a car for trip to Nagpur and promises to pay after completion of journey , this is not a contingent contract. This may be called a conditional contract but not a contingent contract.

Contingent Event Promisor  Performance of contingent contract depends upon happening or non‐ happening of an uncertain “event”.  The “event” may be an “act” and accordingly contract may be contingent on act of party to the promise or of a third party.  However the contingent event should not be a

V. Will of the For Example • Rajesh promises to pay Manoj Rs. 1,00,000 if Rajesh desires‐ it is no contract at all. • Rajesh promises to pay Manoj Rs. 1,00,000 if Manoj goes to Delhi before next January‐ it is a contingent contract since it depends upon act of Manoj going to Delhi before next January, which is an uncertain event.

Rules Regarding Enforcement  Of Contingent Contracts

Rules Regarding Contingent Contracts Sec. 32

Sec. 33

Sec. 34

• When contingency is the “happening of an event”

• When contingency is the “non‐happening of an event”.

• When contingency is the “future conduct of a living person”.

• When contingency is the “happening  or non‐happening of an event  Sec. 35 within a fixed time”

Sec. 36 

• When contingency is  “an impossible event”.

Rules Regarding Contingent Contracts When contingency is the “happening of an event” (Sec. 32)

For Example

•

•

1. Contract cannot be enforced unless and until the event has happened. •

2. If the event becomes impossible, such contracts become void.

Raj makes a contract with Hari to buy Hari' s house if Shyam dies before Raj. This contract cannot be enforced till the death of Shyam. A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse. A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

Rules Regarding Contingent Contracts When contingency is the “non‐happening of an event” (Sec. 33) •

Contract can be enforced only when happening of the event becomes impossible.

For Example • 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 only when the ship sinks.

Rules Regarding Contingent Contracts When contingency is the “future conduct of a living person” (Sec. 34) • The contract becomes void when such person does anything to make the event impossible.

For Example • 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 afterwards marry B.

Rules Regarding Contingent Contracts When contingency is the “happening of an event within a fixed time”(Sec. 35) • Contract becomes void : – If, at the expiration of the time fixed, such event has not happened. – If, before the time fixed, such event becomes impossible.

For Example • 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 the year, and becomes void if the ship is burnt within the year.

Rules Regarding Contingent Contracts When contingency is the “non‐happening of an event within a fixed time”(Sec. 35) • Contract may be enforced : – When the time expired and such not happened. – When before the has expired, it certain that such not happen.

fixed has event has time fixed becomes event will

For Example

• 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 the year.

Rules Regarding Contingent Contracts When contingency is “an impossible event” (Sec. 36) • The contract is void. • It is void even if the impossibility of the event was not known to the parties to the agreement at the time when it is made.

For Example • A agrees to pay B 1, 000 rupees if a triangle can be made with only two straight lines. The agreement is void. •

A agrees to pay B 1, 000 rupees if B will marry A' s daughter C. C was dead at the time of the agreement. The agreement is void

Difference Between A Contingent Contract And A Wagering Contract Wagering Contract

Contingent Contract

1.

1.

2. 3. 4. 5. 6. 7.

A promise to pay money or money’s worth with reference to an uncertain event happening or not happening. It consists of reciprocal promises. The uncertain event is the core factor. It is essentially contingent in nature. Here, the contracting parties have no interest in the subject matter. It is a game, losing and gaining alone matters. Wagering agreement is void.

2. 3. 4. 5. 6. 7.

A contract to do or not to do something with reference to a collateral event happening or not happening. It may not contain reciprocal promises. The event is collateral. It may not be wagering in nature. Here, the contracting parties may have interest in the subject matter. It is not so in case of contingent contract. Contingent contract is valid.

Quasi ‐ Contracts

Quasi‐Contracts An obligation that the law creates in the absence of an agreement between  the parties.

In certain situations, a person may receive a benefit for which the law  considers that he should pay to another person even though there is no  contract between the parties. Such relationships are known as quasi  contracts.  

These contracts create same obligations as in the case of regular contract.

Types of Quasi Contract • Claim for necessaries supplied to persons incapable of contracting.

Sec. 68

• Right to recover money paid for another person.

Sec. 69

• Responsibility of finder of goods.

Sec. 71

• Obligation of person enjoying benefits of non‐ gratuitous act.

Sec. 70

• Liability for money paid or thing delivered by mistake or by coercion.

Sec. 72

Claim For Necessaries Supplied To Persons Incapable Of Contracting • If a person, – incapable of entering into a contract, or – any one 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 i bl (S 68)

For Example

• A supplies B, a minor, necessary books for his studies. A is entitled to be reimbursed from B’s property. • A supplies daily ration to the wife and children of B, a lunatic. A is entitled to be reimbursed from B’s property.

Right To Recover Money Paid For Another Person • A person, – who is interested in the payment of money – which another is bound by law to pay, and – who therefore pays it, – is entitled to be reimbursed by the other. (Sec. 69)

For Example • A is tenant of house owned by B. B has not paid municipal taxes due to corporation and corporation has ordered seizure of the property. A pays the taxes to corporation. A can recover this money from B.

Obligation Of Person Enjoying Benefits Of Non‐gratuitous Act • Where a person – lawfully does anything for another person, or delivers anything to him, and – he does not intend to do so gratuitously, and – other person enjoys the benefit thereof, – the latter is bound to compensate the former in respect of the thing so done or delivered. (Sec. 70)

For Example

• A, a tradesman, leaves goods at B' s house by mistake. B treats the goods as his own. He is bound to pay A for them. • A saves B' s property from fire. A is not entitled to compensation from B, if the circumstances show that he intended to act gratuitously.

Responsibility Of Finder Of Goods • A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee(Sec. 71) • Thus a finder of goods has : – To take proper care of the goods as a man of ordinary prudence would take. – No right to appropriate the goods h d if h

For Example Shailendra, a shopkeeper finds a diamond bracelet in his shop and keeps it in an open shelf from where it goes missing. Shailendra is liable to compensate the owner since he has not taken the proper care which a prudent man would have taken.

Liability for money paid or thing delivered by mistake or by coercion – A person to whom money has been paid, or anything delivered, by mistake or under coercion, – must repay or return it. (Sec. 72)

For Example • A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not knowing of this fact, pays 100 rupees over again to C. C is bound to repay the amount to B. • An Airline refuses a passenger permission to board a flight unless he pays extra baggage charges though the baggage are within the permissible limit. Passenger pays the sum demanded in order to board the flight. He is entitled to recover so much of the charge as was excessive.

Summary A contract may be either absolute or contingent. Contingent Contract is one where the promisor undertakes to perform the  contract which is  depended on the happening/ non‐ happening of a specified  future uncertain event, which is collateral to the contract. All wagering agreements are basically contingent agreements but all the  contingent contracts are not wagering agreements. Quasi Contracts / Constructive contracts are the contracts presumed by law.  These are the contracts which are imposed by law.

Summary Quasi Contract may be exercised under following five  conditions‐ • Necessaries of  life supplied to incapable person  or to his  dependents. • Person pays money on behalf of the one, who is legally  bound to pay. • Person enjoying the benefits of non gratuitous act. • Person finds the goods belonging to others. • Person to whom money has been paid or anything  delivered by mistake or under coercion.

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