Contingent and Quasi Contracts (Part - 1) CA Foundation Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA Foundation : Contingent and Quasi Contracts (Part - 1) CA Foundation Notes | EduRev

The document Contingent and Quasi Contracts (Part - 1) CA Foundation Notes | EduRev is a part of the CA Foundation Course Business Laws for CA Foundation.
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LEARNING OUTCOMES:
After studying this unit, you would be able to:
• Have clarity about the basic characteristics of ‘Contingent contract’ and ‘Quasi-contract’ so that you are able to distinguish between a contract of any of these types and a simple contract.
• Be familiar with the rules relating to enforcement of these in order to gain an understanding of rights and obligations of the parties to the contract.

CONTINGENT CONTRACTS:

In this unit we shall briefly examine what is called a ‘contingent contract’, its essentials and the rules regarding enforcement of this type of contracts. The Contract Act recognises certain cases in which an obligation is created without a contract. Such obligations arise out of certain relations which cannot be called as contracts in the strict sense. There is no offer, no acceptance, no consensus ad idem and in fact neither agreement nor promise and yet the law imposes an obligation on one party and confers a right in favour of the other. We shall have a look on these cases of ‘Quasi-contracts’.

A contract may be absolute or a contingent. An Absolute contract is one where the promisor undertakes to perform the contract in any event without any condition.

Definition of ‘Contingent Contract’ (Section 31)
“A contract to do or not to do something, if some event, collateral to such contract, does or does not happen”.

Contracts of Insurance, indemnity and guarantee fall under this category.

Example: A contracts to pay B Rs. 1,00,000 if B’s house is burnt. This is a contingent contract.

Meaning of collateral Event: Pollock and Mulla defined collateral event as “an event which is neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise”.

Example: A contracts to pay B Rs. 100,000 if B’s house is burnt. This is a contingent contract. Here the burning of the B’s house is neither a performance promised as part of the contract nor it is the consideration obtained from B. The liability of A arises only on the happening of the collateral event.

Essentials of a contingent contract
(a) The performance of a contingent contract would depend upon the happening or non-happening of some event or condition: The condition may be precedent or subsequent.
Example: ‘A’ promises to pay Rs. 50,000 to ‘B’ if it rains on first of the next month.
(b) The event referred to is collateral to the contract: The event is not part of the contract.  The event should be neither performance promised nor a consideration for a promise.

Thus (i) where A agrees to deliver 100 bags of wheat and B agrees to pay the price only afterwards, the contract is a conditional contract and not contingent; because the event on which B’s obligation is made to depend is part of the promise itself and not a collateral event.
(ii) Similarly, where A promises to pay B Rs. 1,00,000 if he marries C, it is not a contingent contract.
(iii) ‘A’ agreed to construct a swimming pool for ‘B’ for Rs. 200,000. And ‘B’ agreed to make the payment only on the completion of the swimming pool. It is not a contingent contract as the event (i.e. construction of the swimming pool) is directly connected with the contract.
(c) The contingent event should not be a mere ‘will’ of the promisor: The event should be contingent in addition to being the will of the promisor.

Example 1: If A promises to pay B Rs. 100,000, if he so chooses, it is not a contingent contract. (In fact, it is not a contract at all). However, where the event is within the promisor’s will but not merely his will, it may be contingent contract.
Example 2: If A promises to pay B  Rs. 100,000 if A left Delhi for Mumbai on a particular day, it is a contingent contract, because going to Mumbai is an event no doubt within A’s will, but is not merely his will.
(d) The event must be uncertain: Where the event is certain or bound to happen, the contract is due to be performed, then it is a not contingent contract.

Example: ‘A’ agreed to sell his agricultural land to ‘B’ after obtaining the necessary permission from the collector. As a matter of course, the permission was generally granted on the fulfillment of certain formalities. It was held that the contract was not a contingent contract as the grant of permission by the collector was almost a certainty.

RULES RELATING TO ENFORCEMENT:

The rules relating to enforcement of a contingent contract are laid down in sections 32, 33, 34, 35 and 36 of the Act.
(a) Enforcement of contracts contingent on an event happening: Where a contract identifies happening of a future contingent event, the contract cannot be enforced until and unless the event ‘happens’. If the happening of the event becomes impossible, then the contingent contract is void.

Section 32 says that “where a contingent contract is made to do or not to do anything if an uncertain future event happens, it cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void”.

Example: A contracts to pay B a sum of money when B marries C. C dies without being married to B. The Contract becomes void.
(b) Enforcement of contracts contingent on an event not happening: Where a contingent contract is made contingent on a non-happening of an event, it can be enforced only when its happening becomes impossible. Section 33 says that “Where a contingent contract is made to do or not do anything if an uncertain future event does not happen, it can be enforced only when the happening of that event becomes impossible and not before”.

Example: Where ‘P’ agrees to pay ‘Q’ a sum of money if a particular ship does not return, the contract becomes enforceable only if the ship sinks so that it cannot return.

Where A agrees to pay sum of money to B if certain ship does not return however the ship returns back. Here the contract becomes void.
(c) A contract would cease to be enforceable if it is contingent upon the conduct of a living person when that living person does some thing to make the ‘event’ or ‘conduct’ as impossible of happening:
Section 34 says that “if a contract is contingent upon as to how a person will act at an unspecified time, the event shall be considered to have become impossible when such person does anything which renders it impossible that he should so act within any denite time or otherwise than under further contingencies”.

Example: Where ‘A’ agrees to pay ‘B’ a sum of money if ‘B’ marries ‘C’.  ‘C’ marries ‘D’. This act of ‘C’ has rendered the event of ‘B’ marrying ‘C’ as impossible; it is though possible if there is divorce between ‘C’ and ‘D’.

In Frost V. Knight, the defendant promised to marry the plaintiff on the death of his father. While the father was still alive, he married another woman. It was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for the breach of the contract.
(d) Contingent on happening of specified event within the fixed time: Section 35 says that Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or if,  before the time fixed, such event becomes impossible.

Example: A promises to pay B a sum of money if 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.
(e) Contingent on specified event not happening within fixed time Section 35: also says that “Contingent contracts to do or not to do anything, if a specified uncertain event does not happen 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”.

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.
(f) Contingent on an impossible event (Section 36): 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.

Example 1: ‘A’ agrees to pay ‘B’ one lac if sun rises in the west next morning.  This is an impossible event and hence void.

Example 2: X agrees to pay Y Rs. 1,00,000 if two straight lines should enclose a space. The agreement is void.
Difference between a contingent contract and a wagering contract

Basis of difference
Contingent contract
Wagering contract
Meaning
A contingent contract is a contract to do or not to do something with reference to a collateral event happening or not happening.
A wagering agreement is a promise to give money or money’s worth with reference to an uncertain event happening or not happening.
Reciprocal promises
Contingent contract may not contain reciprocal promises.
A wagering agreement consists of reciprocal promises.
Uncertain event
In a contingent contract, the event is collateral.
In a wagering contract, the uncertain event is the core factor.
Nature of contract
Contingent contract may not be wagering in nature.
A wagering agreement is essentially contingent in nature.
Interest of contracting par ties
Contracting parties have interest in the subject matter in contingent contract.
The contracting parties have no interest in the subject matter.
Doctrine of mutuality of lose and gain
Contingent contract is not based on doctrine of mutuality of lose and gain.
A wagering contract is a game, losing and gaining alone matters.
Effect of contract
Contingent contract is valid.
A wagering agreement is void.


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