BUSINESS LAW

UNIT 6 : CONTINGENT AND QUASI CONTRACTS

6.1 CONTINGENT CONTRACTS

In this unit we shall briefiy 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 ofier, 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 ` 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 ` 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 ` 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 ` 1,00,000 if he marries C, it is not a contingent contract.

(iii) ‘A’ agreed to construct a swimming pool for ‘B’ for ` 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 ` 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.
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Example 2: If A promises to pay B `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 ton 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.

6.2 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 definite 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 plaintifi 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 plaintifi and she was entitled to sue him for the breach of the contract.
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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 lakh if sun rises in the west next morning. This is an impossible
event and hence void.
Example 2: X agrees to pay Y `1,00,000 if two straight lines should enclose a space. The agreement
is void.
Difierence between a contingent contract and a wagering contract

Basis of Contingent contract Wagering contract

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

6.3 QUASI CONTRACTS

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A valid contract must contain certain essential elements, such as ofier and acceptance, capacity to
contract, consideration and free consent. But sometimes the law implies a promise imposing
obligations on one party and conferring right in favour of the other even when there is no ofier, no
acceptance, no genuine consent, lawful consideration, etc. and in fact neither agreement nor promise.
Such cases are not contracts in the strict sense, but the Court recognises them as relations
resembling those of contracts and enforces them as if they were contracts. Hence the term Quasi
–contracts (i.e. resembling a contract). Even in the absence of a contract, certain social
relationships give rise to certain specific obligations to be performed by certain
persons. These are known as quasi contracts as they create same obligations as in the case of regular
contract.
Quasi contracts are based on principles of equity, justice and good conscience.
A quasi or constructive contract rests upon the maxims, “No man must grow rich out of another
persons loss”.
Example 1: T, a tradesman, leaves goods at C’s house by mistake. C treats the goods as his own. C is
bound
to pay for the goods.
Example 2: A pays some money to B by mistake. It is really due to C. B must refund the money to
A.

Example 3: A fruit parcel is delivered under a mistake to R who consumes the fruits thinking them
as birthday present. R must return the parcel or pay for the fruits. Although there is no agreement
between R and the true owner, yet he is bound to pay as the law regards it a Quasi-contract.
These relations are called as quasi-contractual obligations. In India it is also called as
‘certain relation resembling those created by contracts’.
Salient features of quasi contracts:
a) In the first place, such a right is always a right to money and generally, though not always, to a
liquidated sum of money.
b) Secondly, it does not arise from any agreement of the parties concerned, but is imposed by the
law; and
c) Thirdly, it is a right which is available not against all the world, but against a particular person or
persons only, so that in this respect it resembles a contractual right.
Under the provisions of the Indian Contract Act, the relationship of quasi contract is deemed to have
come to exist in five difierent circumstances which we shall presently dilate upon. But it may be noted
that in none of these cases there comes into existence any contract between the parties in the real
sense. Due to peculiar circumstances in which they are placed, the law imposes in each of these cases
the contractual liability.
a) 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.
Example: A supplies B, a lunatic, or a minor, with necessaries suitable to his condition in life. A is
entitled to be reimbursed from B’s property.
To establish his claim, the supplier must prove not only that the goods were supplied to the person
who was minor or a lunatic but also that they were suitable to his actual requirements at the time of
the sale and delivery.
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b) Payment by an interested person (Section 69): 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.
Example: B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by
A to the Government being in arrear, his land is advertised for sale by the Government. Under the
revenue law, the consequence of the sale will be the annulment of B’s lease. B, to prevent the sale
and the consequent annulment of his own lease, pays to the government the sum due from A. A is
bound to make good to B the amount so paid.
c) Obligation of person enjoying benefits of non-gratuitous act (Section 70): In term of
section 70 of the Act “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 pay 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 plaintifi must prove:
(i) that he had done the act or had delivered the thing lawfully;
(ii) that he did not do so gratuitously; and
(iii) that the other person enjoyed the benefit.
The above can be illustrated by a case law where ‘K’ a government servant was compulsorily
retired by the government. He filed a writ petition and obtained an injunction against the order. He
was reinstated and was paid salary but was given no work and in the mean time government went
on appeal. The appeal was decided in favour of the government and ‘K’ was directed to return the
salary paid to him during the period of reinstatement. [ShyamLal vs. State of U.P. A.I.R (1968)
130]
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.
d) Responsibility of finder of goods (Section 71): ‘A person who finds goods belonging to
another and takes them into his custody is subject to same responsibility as if he were a bailee’.
Thus a finder of lost goods has:
(i) to take proper care of the property as man of ordinary prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In Hollins vs. Howler L. R. & H. L., ‘H’ picked up a diamond on the fioor of ‘F’s shop and handed
over the same to ‘F’ to keep till the owner was found. In spite of the best efiorts, the true owner could
not be traced. After the lapse of some weeks, ‘H’ tendered to ‘F’ the lawful expenses incurred by him
and requested to return the diamond to him. ‘F’ refused to do so. Held, ‘F’ must return the diamond
to ‘H’ as he was entitled to retain the goods found against everybody except the true owner.
Example: ‘P’ a customer in ‘D’s shop puts down a brooch worn on her coat and forgets to pick it up
and one of ‘D’s assistants finds it and puts it in a drawer over the weekend. On Monday, it was
discovered to be missing. ‘D’ was held to be liable in the absence of ordinary care which a prudent
man would have taken.
e) Money paid 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”. Every kind of
payment of money or delivery of goods for every type of ‘mistake’ is recoverable.
[Shivprasadvs Sirish Chandra A.I.R. 1949 P.C. 297]
Example: A payment of municipal tax made under mistaken belief or because of mis-
understanding
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of the terms of lease can be recovered from municipal authorities. The above law was afirmed by
Supreme Court in cases of Sales tax oficer vs. Kanhaiyalal A. I. R. 1959 S. C. 835
Similarlyany money paid by coercion is also recoverable. The word coercion is not necessarily
governed by section 15 of the Act. The word is interpreted to mean and include oppression, extortion,
or such other means [Seth Khanjelekvs National Bank of India].
In a case where ‘T’ was traveling without ticket in a tram car and on checking he was asked to pay
`5/- as penalty to compound transaction. T filed a suit against the corporation for recovery on the
ground that it was extorted from him. The suit was decreed in his favour. [Trikamdas vs. Bombay
Municipal Corporation A. I. R.1954]
In all the above cases the contractual liability arose without any agreement between the parties.
Difference between quasi contracts and contracts

Basis of distinction Quasi- Contract Contract

Essential for the valid The essentials for the Present
contract formation of a valid
contract are absent
Obligation Imposed by law Created by the consent of
the parties