CA Foundation Solutions For Business Laws – Contingent And Quasi Contracts

Contingent And Quasi Contracts Self Study Questions And Answers

Question 1. Described the Rules Relating to Enforcement Under the Indian Contract Act, 1872.

Answer:

The Rules Relating to Enforcement Under the Indian Contract Act, 1872

Question 2. State Briefly the Law Relating to Quasi Contracts.

Answer:

Quasi Contracts

An obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. They are known as quasi-contracts.

• They are based on principles of equity, justice, and good conscience.
• They are termed as certain relations resembling those created by contracts.
• It is also known as the Law of Restitution.

It has the following features:

• It does not arise from any agreement between the parties but, is imposed by law.
• It is a right only available against a particular person or persons and not against the entire world.

They are of the following types:

1. Supply of necessaries
2. Reimbursement of money due
3. Obligation to pay for benefit out of the non-gratuitous act
4. Responsibility of finder of goods
5. Persons receiving goods or money by mistake
6. Quantum merit (as much as earned or reasonable remuneration)

Supply of necessaries (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”.
• If necessaries are supplied to a minor or person of unsound mind, the supplier is entitled to claim their prize from the property of such a person.
• If there is no property, nothing will be realizable.

Reimbursement of money due (Section 69)

• “A person, who is interested in the payment of money and pays such money, which another is bound by law to pay, is entitled to be reimbursed by the other.”
• 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 by him to protect his interest.
• Payment must be bona fide.

Obligation to pay for benefit out of non-gratuitous act (Section 70)

“Where a person lawfully does something for another person delivers anything to him, not intending to do so gratuitously and the other person accepts and enjoys the benefits thereof, then he is bound to make compensation to the other in respect of or to rectory the thing so done or delivered”.

Question 3. Explain the Liabilities of a Person receiving goods or money by mistake.

Answer:

The Liabilities of a Person receiving goods or money by mistake

1. A person receiving goods or money by mistake
2. “A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it”.
3. Mistakes, need not be unintentional, they may be even intentional.

Contingent And Quasi-Contract Objective Questions And Answers

Question 1. State with reason whether the following statement is true or false: In Quasi contracts, the promise to pay is always an implication of law and not of facts.

Answer:

Correct: Though quasi-contracts are not contracts in the strict sense (as there is no offer, acceptance, consensus-ad-idem, etc), the law from the circumstances of the case, conduct, and relationship of parties, implies by fiction an obligation on the one party and confirming a right to a money payment in favor of the other.

Question 2. State with reason whether the following statement is true or false: A ‘Contract of indemnity’ is not a ‘Contingent contract’.

Answer:

Incorrect: Indemnity is an act to compensate or protect somebody against loss or to make good the loss suffered (Section 124 of Indian Contract Act, 1872). The contingency upon such the whole contract of indemnity depends upon the event of suffering loss by the other party. Thus, a contract of indemnity is a type of contingent contract.

Distinguish Between Contingent And Quasi Contracts

Question 1. Distinguish Between the following: Wagering agreement and Contingent contract.

Answer:

Wagering agreement and Contingent contract: Agreements by way of wager are void, according to Section 30. In a wagering agreement, two parties have opposite views regarding an uncertain event.

• And they stipulate that upon the determination of the event in a certain way the parties shall win or lose from each other, a certain sum of money, and the parties have no other interest in the event except winning or losing a bet.
• According to Section 31 of the Indian Contract Act, of 1872 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.

Contracts of Indemnity or insurance are of this type. However, there is a difference between the wagering agreements and contingent contracts which may be enumerated as follows:

1. A wagering agreement consists of reciprocal promises whereas a contingent, contract may not contain reciprocal promises.
2. In a wagering agreement, the uncertain event is the sole determining factor, while in a contingent contract, the event is only collateral.
3. A wagering agreement is essentially contingent whereas a contingent contract may not be wagering.
4. A wagering agreement is void whereas a contingent contract is valid.
5. In a wagering agreement, the parties have no other interest in the subject matter of the agreement except the winning or losing of the amount of the Wager. In other words, a wagering agreement is a game of chance. This is not so in the case of a contingent contract.

Question 2. Distinguish between a wagering agreement and a contract of insurance.

Answer:

Difference between a Contingent Contract or Contract of Insurance and a Wagering Contract:

Contract of Insurance:

Contingent And Quasi Contracts Descriptive Questions And Answers

Question 1. Explain the meaning of ‘Contingent Contracts’ and state the rules relating to such contracts.

Answer:

The meaning of ‘Contingent Contracts’

Essential characteristics of a contingent contract: A contract may be absolute or contingent. A contract is said to be absolute when the promisor undertakes to perform the contract in all events.

• A contingent contract, on the other hand “is a contract to do or not to do something, if some event, collateral to such contract does or does not happen” (Section 31).
• It is a contract in which the performance becomes due only upon the happening of some event that may or may not happen.

For example, A contracts to pay B ₹ 10,000, if he is elected President of a particular association. This is a contingent contract. The essential characteristics of a contingent contract may be listed as follows:

• There must be a contract to do or not to do something.
• The performance of the contract must depend upon the happening or not happening of some event.
• The happening of the event is uncertain.
• The event on which the performance is made to depend upon is an event collateral to the contract i.e. it does not form part of the reciprocal promises which constitute the contract.
• The event should neither be a performance promised, nor a consideration for the promise.
• The contingent event should not be the mere will of the promisor.
• However, where the event is within the promisor’s will, but not merely his will, it may be a contingent contract.

The rules regarding the contingent contract are as follows:

1. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void. (Section 32).
2. Where a contingent contract is to be performed if a particular event does not happen, its performance can be enforced only when the happening of that event becomes impossible. (Section 33).
3. 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. (Section 34, 35).
4. The contingent contracts to do or not to do anything if an impossible event happens, are void whether or not the fact is known to the parties. (Section 36).

Question 2. What is meant by Quasi-contract? Explain the types of Quasi-contracts that have been described in the Indian Contract Act,1 872.

Answer:

Quasi-contracts: Under certain circumstances, a person may receive a benefit to which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties.

Such relationships are termed “Quasi-Contracts”. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

Sections 68 to 72 of the Indian Contract Act have prescribed the following relationships creating quasi-contractual relations:

1. Supply of necessaries: Under 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 conditions in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
2. Payment by an interested person: It has been laid down in Section 69 of the Indian Contract Act that 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.
3. Obligation to pay for non-gratuitous Act: Section 70 of the Indian Contract Act states that 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 in respect of or to restore, the thing so done or delivered.
4. Responsibility of finder of goods: Under Section 7 of the Act, a person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.
5. A case where money is paid by mistake or under coercion: Finally, Section 72 of the Indian Contract Act provides that a person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.

Thus, quasi quasi-contractual right is always a right to money and generally though not always to a liquidated sum of money. It does not arise from any agreement of the parties concerned but is imposed by the law.

It is a right that is not available against all the world but against a particular person or persons only. There is no contract between the parties in cases of quasi-contracts, yet they are put in the same position as if there were a contract between them.

Question 3. Explain briefly the following: The duties and liabilities of a finder of goods are treated at par with bailee.

Answer:

Duties and Liabilities of finder of goods: The duties and liabilities of a finder of goods are treated at par with bailee.

• A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. (Section 71 of the Indian Contract Act, 1872).
• He is bound to take as much care of the goods as a man of ordinary prudence would, under similar circumstances, take off his goods of the same bulk quality and value. He must also take all necessary measures to trace its true owner.
• If he does not take it, he will be guilty of wrongful conversion of the property.

Till the owner is found out, the property in the goods will vest in the finder and he can retain the goods as his own against the whole world except the real owner.

He can sell the goods in the following cases:

1. Where the owner cannot with reasonable diligence be found; or
2. When found, he refuses to pay the lawful charges of the finder; or
3. If the thing is in danger of perishing or losing a greater part of its value.
4. If the lawful charges amount to 2/3 of the value of the thing.

Question 4. What is a Contingent Contract? Discuss the essentials of a Contingent Contract as per the Indian Contract Act, of 1872.

Answer:

Contingent Contract

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

The essential constituents of a contingent contract are:

The performance of a contingent contract would depend upon the happening or non-happening of some event or condition.

Example:

Promises to pay ₹ 50,000 to B if it rains on the first of the next month.

1. The event referred to is collateral to the contract. The event is not part of the contract. The event should be neither a performance promised nor a consideration for a promise.
2. The contingent event should not be a more will of the promisor. The event should be contingent in addition to being the will of the promisor.
3. The event must be uncertain. Where the event is certain or bound to happen, the contract is due to be performed, then it is not a contingent contract.

Question 5. Explain the term Contingent Contract concerning The Indian Contract Act, 1872 with the help of an example. Also, discuss the rules relating to the enforcement of a contingent contract.

Answer:

Contingent Contract:

Contingent contract is a contract:

1. To do or not to do something
2. If some event, collateral to such contract,
3. Does or does not happen.

For Example. contracts of Insurance, indemnity, and guarantee fall under this category.

illustration: X advances ₹ 25,000 to B based on a promise made by S (Surety) to repay the amount If X fails to repay it within a month.

Rules relating to the enforcement of a contingent contract:

1. Enforcement of contracts contingent on the ‘happening’ of an event:
   • If the event happens, then the contract becomes valid.
   • If the event does not happen or becomes impossible, then the contract becomes void.
2. Enforcement of contracts contingent on the Not-happening of an event:
   • If the event happens, then the contract becomes void.
   • If the event does not happen or becomes impossible, then the contract becomes valid.
3. A contract contingent upon future conduct of a living person: If the future conduct of the living person fulfills that condition then the contract becomes enforceable if the future conduct renders the happening of such event impossible then the contract becomes void.
4. Contingent happening of specified event within the fixed time: If the event happens within the fixed tune, ‘the contract becomes enforceable else becomes void.
5. Contingent on a specified event not happening within the specified time: If the event happens within the specified time out becomes void else valid and enforceable.
6. Contingent on an impossible event: If performance is based on an impossible event then the contract is void. Whether impossibility is known to the parties or not.

Question 6. What is meant by ‘Quasi-Contract’? State any three salient features of a quasi-contract as per the Indian Contract Act, 1872.

Answer:

Quasi Contracts: Under certain special circumstances, obligation resembling those created by a contract is imposed by law although the parties have never entered into a contract. Such obligations are imposed by law.

• are referred to as ‘Quasi Contracts’. Such a contract resembles a contract so far, as result or effect is concerned but it has little or no affinity with a contract with respect of the mode of creation.
• These contracts are based on the doctrine, that a person shall not be allowed to enrich himself unjustly at the expense of another.

The salient features of a quasi-contract are :

• It does not arise from any agreement of the parties concerned but is imposed by law.
• Duty and not promise is the basis of such a contract.
• The right under it is always a right to money and generally though not always to a liquidated sum of money.
• Such a right is available against a specific person(s) and not against the whole world.
• A suit for its breach may be filed in the same way as in the case of a complete contract.

Question 7. X found a wallet in a restaurant. He enquired of all the customers present there but the true owner could not be found. He handed over the same to the manager of the restaurant to keep till the true owner was found. After a week he went back to the restaurant to enquire about the wallet. The manager refused to return it to X, saying that it did not belong to him. In light of the Indian Contract Act, of 1672, can X recover it from the Manager?

Answer:

The finder of goods has no right to sue the owner for compensation for trouble and expenses voluntarily incurred by him to presume the goods and to find the true owner.

• But he may retain the goods against the owner until he receives such compensation, until then the finder may retain the goods with him.
• in the given case X finds a wallet in a restaurant and hands it over to the manager as the true owner could not be traced.
• After a week he demands the wallet back from the manager, which he refuses to give, saying it did not belong to X.
• Held, the manager must return the wallet to ‘X’ as he being the finder of lost goods was entitled to retain the goods found against everybody except the true owner.

Thus, ‘X’ can recover the wallet from the manager.