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The Indian Contract Act, 1872

Contract- Meaning and Essentials

Objective After going through this lesson, you shall be able to understand the following concepts:

• What Is a Contingent Contract?

• Essentials of Contingent Contract

• Rules Regarding Performance of Contingent Contract

• Difference Between Contingent and Wagering Contracts

• Meaning of Quasi Contracts

• Types of Quasi Contracts

Before going through this lesson, let us read the meaning of difficult words that we will come across in this lesson.

Introduction

We have already learnt about various types of contracts as classified under the Indian Contract Act, 1872. However, besides those covered under chapter one, there are two more types of contracts that have not been discussed so far, namely, contingent contracts and quasi contracts.

What is a contingent contract?

Consider the following diagram:

What can you infer from this?

We can clearly make out that A promises to pay B Rs 500 in case the train doesn't arrives at its scheduled time. This means that the payment of the promised amount is dependent upon the arrival of train, that is, whether it turns up at the scheduled time or not?

Also, it can be said that the performance of contract between A and B is dependent upon arrival of train, or the contract between A and B is a conditional contract. This is called a contingent contract.

Before proceeding further, let us check what the Indian Contract Act, 1872, states about the same. The performance of contingent contracts is made dependent upon a contingency.This is the reason they are sometimes called ‘conditional contracts’. However, sometimes an absolute contract may appear to be conditional whereas in reality, it is not so. Such contracts are not contingent contracts. This can be understood with help of an example. Suppose a person who wants to purchase a 300 × 500 square yards of plot in the outskirts of city agrees to pay Rs 2,00,000 to a broker who if manages to make available the required plot to him. This contract is an absolute contract and not a contingent contract because the uncertain event in the contract is the consideration for the contract itself and is not a collateral event. For a contract to be contingent, the uncertain event should be collateral to such contracts and not the consideration. Essentials of a contingent contract The definition of contingent contracts as provided by Section 31 of the Indian Contract Act, 1872, points certain essentials for a contract to be called contingent contract.

• Whether or not a contingent contract will be performed depends on the occurrence or non-occurrence of some future event.

• The occurrence of the event on which the performance of the contract is dependent is collateral to the contract, i.e. incidental to contract.

• The event must involve uncertainty and chance factor and should not be a mere wish of the promisor.

Example: A person agreeing to give a watch to B just because he wants to give him the same is not a contingent contract as the watch is being given out of wish of the promisor and is not dependent on any uncertain event. Rules Regarding Performance of Contingent Contract

The rules regarding the performance of contingent contracts are mentioned in Section 21 to Section 34 of the Indian Contract Act, 1872, and have been discussed below.

(i) Contracts contingent upon happening of an uncertain event: A contract might be contingent upon happening of an uncertain event, that is, it is made dependent upon happening of an uncertain future event. As per Section 32 of the Indian Contract Act, 1872, such a contract cannot be enforced by law unless and until that event has happened. If the event becomes impossible, then the contract becomes void. In other words, a contingent contract the performance of which is dependent on the occurrence of an uncertain event can be enforced only when the event actually happens.

Example: Aryan contracts with Veer to rent his house to him if Zara, to whom the house was earlier offered, refuses to take it on rent. The contract can be enforced by law only when Zara refuses the offer but not before that.

(ii) Contracts contingent upon the non-happening of an uncertain future event: Similar to contracts contingent upon happening of an uncertain event, there are some contracts that are contingent upon non-happening of an uncertain future event. As per Section 33 of the Indian Contract Act, 1872, contingent contracts to do or not to do anything, if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible and not before that .

In other words, a contingent contract the performance of which is dependent on the non-occurrence of an uncertain event can be enforced only when the event cannot happen at all or becomes impossible.   Example: Ankit, while listening to the news about bad weather, agrees to pay Ankush a certain sum of money if one of the planes shown as stuck by heavy storm does not turn back. Later, it was shown that the weather has turned more unfavourable and as a result, the flight got crashed. Thus, with the crashing of plane, the contract between Ankit and Ankush becomes enforceable. Example 1: Ajit agrees to pay Rs 10,000 to Gaurav if certain ship does not return within a year. State the legal positions in following cases: If the ship returns within a year If ship does not return within a year Solution As per Section 35 of the Indian Contract Act, 1872, contracts contingent upon the non-happening of an uncertain event within a fixed time can be enforced by law if, before the fixed time, such event does not happen or it becomes certain that such event will not happen.

Accordingly,

Gaurav cannot recover anything from Ankit as the contract becomes void with arrival of the ship.     Gaurav can recover the amount of Rs 10,000 from Ankit as the contract can be enforced on the expiry of fixed time or with the happening of such event becoming impossible.

(iii) Contracts contingent upon the future conduct of a living person: As per Section 34 of the Indian Contract Act, 1872, “ If a contract is contingent upon how a person will act at an unspecified time, the event is considered impossible when such person does something that renders it impossible to perform the contract within any definite time.”

In other words, when the performance of a contract depends on how a specific person acts at a particular point of time, then the contract will become impossible when the person acts in such a manner that the performance of the contract becomes impossible. This can be better understood with the help of the following example:

Example: Kayo agrees to rent his house to Naman if he marries his niece Kaira. However, Kaira marries Nick. Now, in such a case, the marriage of Naman and Kaira is considered to be an impossible event. However, in the later period, there are chances that Nick dies and then Naman marries Kaira. But now, in the changed circumstances, the old obligation of Naman to rent the house comes to an end.

(iv) Contracts contingent upon the happening of an uncertain specified event within a fixed time: As per Section 35 of the Indian Contract Act, 1872, “Contracts to do or not to do, if a specified uncertain event happens within a fixed time, becomes void, if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.”

In other words, when a contract, contingent to the occurrence of an event, having an element of time attached to it can be enforced when such event occurs within the specified time and becomes void when the time so fixed expires.

Example: Arpita promises to rent her house to Mohit if Chunmun, to whom the house has already been offered, refuses the offer within two days. The contract between Arpita and Mohit may be enforced if Chunmun refuses the offer within two days, but becomes void if Chunmun accepts the offer within two days.

(v) Contracts contingent upon the non-happening of an uncertain specified event within fixed time: In contrast to contracts contingent upon happening of an uncertain event within a fixed time, contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, can be enforced by law when the time fixed has expired and such event has not happened, or before the time fixed has expired, it becomes certain that such event will not happen. This is given in Section 35(2) of the Indian Contract Act, 1872. In simple words, sometimes it may happen that the contract is dependent on the non-occurrence of an uncertain event having an element of time attached to it. In such situations, the contract can be enforced if the event does not happen within a specified time.

Example: A promises to pay certain sum of money to B, if  a certain flight does not return on the scheduled time on that day. Due to unfavourable weather conditions, it was announced that the flight has been cancelled for the day. The cancellation of flight makes the contract between A and B enforceable.

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