CMA Foundation – Quasi and Contingent Contracts Lesson 2.5

Prepare for your CMA Foundation Paper 1 Business Laws and Business Communication. using our CMA Foundation Study Materials. Here is Lesson 2.5 Quasi and Contingent Contracts for your reference.

Quasi and Contingent Contracts

Contracts usually arise from mutual agreement between parties. However, there are certain situations where obligations are created by law even without any formal agreement. Such obligations are called Quasi-Contracts.

Similarly, in some agreements, performance depends on the occurrence or non-occurrence of a future uncertain event — these are known as Contingent Contracts.

Quasi-Contracts

A quasi-contract is not an actual contract formed by agreement but a legal obligation imposed by law to ensure justice and prevent unjust enrichment.
The Indian Contract Act describes these as “certain relations resembling those created by contracts.” In English law, they are known as implied or constructive contracts.

Example:
A delivers goods to B by mistake, thinking he is C. B consumes the goods. Law imposes a duty on B to pay compensation to A for the value of goods. This is a quasi-contractual obligation.

Features of Quasi-Contracts

1. Imposed by law: These do not arise from any mutual agreement but are created by operation of law.
2. Based on duty: The duty imposed on one party, not any promise, forms the basis of such contracts.
3. Right to money: The right under such contracts is usually a right to receive money.
4. Against specific persons: The obligation is enforceable against specific individuals and not the public at large.
5. Remedy: The remedy is compensation, not damages, and the aggrieved party can sue for breach as in regular contracts.

Types of Quasi-Contracts

The Indian Contract Act provides for the following types of quasi-contractual obligations:

1. Claims for Necessaries Supplied to a Person Incompetent to Contract (Section 68)

If necessaries suitable to a person’s condition in life are supplied to someone who is incompetent to contract (such as a minor or lunatic), the supplier is entitled to recover the price from the property of that person.

Example:
A supplies B, a minor, with clothing and food suitable to his social status. A can recover the amount from B’s property.

2. Payment by an Interested Person (Section 69)

A person who pays money which another is legally bound to pay, to protect his own interests, is entitled to be reimbursed by that other person.

Conditions:

• Payment must be bona fide to protect one’s interest.
• It should not be made gratuitously or voluntarily.
• Another person must be legally bound to pay.
• The payment should be made to a third party.

Example:
A, a tenant, pays property tax that B, the landlord, was legally bound to pay to prevent the property from being seized. A can claim reimbursement from B.

3. Benefit of Non-Gratuitous Act (Section 70)

When a person lawfully does something for another or delivers anything to him, not intending to do so gratuitously, and the other person enjoys the benefit, the latter must compensate or restore the thing delivered.

Conditions:

• The act must be lawful.
• The act must not be intended to be gratuitous.
• The other person must have accepted and enjoyed the benefit.

Example:
A leaves his goods at B’s house by mistake. B uses the goods. B must pay A for their value.

4. Responsibility of Finder of Goods (Section 71)

A person who finds goods belonging to another and takes them into his custody is subject to the same responsibilities as a bailee.
He must take reasonable care of the goods, try to find the real owner, and return them when demanded.

Example:
A finds B’s lost wallet and keeps it safely, making efforts to find B. A acts as a bailee and must return the wallet when B is found.

5. Money Paid or Things Delivered by Mistake or Under Coercion (Section 72)

If money is paid or goods are delivered by mistake or under coercion, the person receiving them must return or repay the same.

Example:
A and B jointly owe ₹100 to C. A pays the full amount. Later, B, unaware of A’s payment, also pays ₹100 to C. C must refund ₹100 to B.

Distinction between Quasi-Contracts and Contracts

Contingent Contracts

A contingent contract is one where the performance depends on the happening or non-happening of a future uncertain event.

Section 31 of the Indian Contract Act defines it as: “A contract to do or not to do something, if some event, collateral to such contract, does or does not happen.”

Example:
A agrees to pay B ₹50,000 if B’s house is burnt. The contract becomes enforceable only if the house is burnt.

Essentials of a Contingent Contract

1. There must be a valid contract to do or not to do something.
2. The performance depends on the occurrence or non-occurrence of a future uncertain event.
3. The event must be uncertain and collateral to the contract.
4. The contract cannot be enforced unless the event happens or becomes impossible.

Rules Regarding Contingent Contracts (Sections 32–36)

1. Enforcement of Contracts Contingent on an Event Happening (Section 32)

Such contracts can be enforced only when the event happens. If the event becomes impossible, the contract becomes void.

Example:
A contracts to pay B if B’s ship returns from London. If the ship sinks, the contract becomes void.

2. Enforcement of Contracts Contingent on an Event Not Happening (Section 33)

Contracts contingent upon the non-happening of an event can be enforced when the event becomes impossible.

Example:
A agrees to pay B if a certain ship does not return. The ship sinks. The contract becomes enforceable.

3. When Event Relates to Conduct of a Living Person (Section 34)

If a contingent event depends on how a person acts at an unspecified time, it is deemed impossible when that person does something that makes performance impossible.

Example:
A agrees to pay B if B marries C. C marries D. The event (B marrying C) becomes impossible.

4. Contingent Contracts Related to Fixed Time (Section 35)

• If a contract depends on an event happening within a fixed time, it becomes void if the event does not occur within that time.
• If it depends on an event not happening within a fixed time, it becomes enforceable after that time expires.

Example:
A promises to pay B if a ship returns within a year. If it does not return within that year, the contract becomes void.

5. Agreements Contingent on Impossible Events (Section 36)

If a contract is based on an impossible event, it is void, whether or not the parties knew it was impossible.

Example:
A agrees to pay B ₹1,000 if two straight lines enclose a space — the agreement is void.

Conclusion

Both quasi-contracts and contingent contracts play vital roles in ensuring fairness and certainty in business dealings.

• Quasi-contracts protect individuals from unjust enrichment when no formal agreement exists.
• Contingent contracts define rights and obligations dependent on future uncertain events.

Understanding these principles helps businesses and individuals comply with legal obligations and make informed decisions in contractual matters.

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