Contingent Contracts, Reciprocal Promises AND QuasiContracts PDF

Preview

Summary

Contingent Contract, Reciprocal Contract, differentiation between them. Relations...

Description

SEPTEMBER 15, 2020

ASSIGNMENT ON CONTINGENT CONTRACTS, RECIPROCAL PROMISES AND QUASI CONTRACTS.

L501: Legal Environment of Business

NONI GOPAL SHIL. Roll 22 62E

Contingent ContractsA "contingent contract" is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. If two or more parties enter into a contract to do or not do something, if an event which is collateral to the contract does or does not happen, then it is a contingent contract. Contingent contracts are the ones where the promisor performs his obligation only when certain conditions are met. Collateral events are events in which neither a performance directly promised as part of the contract, not the whole of the consideration for a promise. For example, in a life insurance contract, the insurer pays a certain amount if the insured dies under certain conditions. The insurer is not called into action until the event of the death of the insured happens. This is a contingent contract. Identifying the contingent contractsFor a contract to consist contingency some essential characteristics are needed to be present. These are the important factor to determine whether a contract contains contingency or not. These are mentioned below

 



Depends on happening or non-happening of the future event. These events can be precedent or subsequent, this will not matter. Like if A promises to give B Tk500 if the next `Silk City’ train arrives at the station on time. This is a contingent contract. The event is collateral to the contract. It is important that the event is not a part of the contract. It cannot be the performance promised or a consideration for a promise. The event should be uncertain. If the event is sure to happen, then the contract is due to be performed. This is not a contingent contract. The event should be uncertain. For example- X promises to pay Y Tk500 if it rains in Dhaka in the month of July 2021. This is not a contingent contract because in July rains are almost a certainty in Dhaka. The event should not be a mere will of the promisor. The event cannot be a wish of the promisor. For example X promises to pay Y Tk5000 if Argentina wins the FIFA World Cup provided he wants to. This is not a contingent contract. Actually, this is not a contract at all. X promises to pay Y TK50000 if Jon leaves Dhaka for Dubai on August 30, 2021. This is a contingent contract. Going to Dubai can be within Y’s will but is not merely his will.

Rules Regarding Contingent Contracts

Contracts Contingent On The Happening Of An Event - A contingent contract might be based on the happening of an uncertain future event. In such cases, the promisor is liable to do or not do something if the event happens. However, the contract cannot be enforced by law unless the event takes place. If the happening of the event becomes impossible, then the contingent contract is void. (Section 32, The Contract Act, 1872). X promises to pay Y TK50000 if he can marry Z, the prettiest girl in the neighborhood. This is a contingent contract. Unfortunately, Z dies in a car accident. Since the happening of the event is no longer possible, the contract is void.



Contracts Contingent On An Event Not Happening - A contingent contract might be based on the non-happening of an uncertain future event. In such cases, the promisor is liable to do or not do something if the event does not happen. However, the contract cannot be enforced by law unless happening of the event becomes impossible. If the event takes place, then the contingent contract is

void. (Section 33, The Contract Act, 1872). X promises to pay Y TK50000 if the ship named Titanic which leaves on a dangerous mission does not return. This is a contingent contract. This contract is enforceable by law if the ship sinks making its return impossible. On the other hand, if the ship returns, then the contract is void. 

Contracts contingent on the conduct of a living person who does something to make the event or conduct as impossible of happening. Section 34 of The Contract Act, 1872 states that if a contract is a contingent upon how a person will act at a future time, then the event is considered impossible when the person does anything which makes it impossible for the event to happen. X promises to pay Y Tk50000 if he marries Z. However, Z marries A. Z’s act thus renders the event of Y’s marrying her impossible. (Divorce is still possible though but the happening of the event is considered impossible).



Contracts Contingent on an Event happening within a Specific Time. There can be a contingent contract wherein a party promises to do or not do something if a future uncertain event happens within a fixed time. Such a contract is void if the event does not happen and the time lapses. It is also void if before the time fixed, the happening of the event becomes impossible. This rule is specified in Section 35 of The Contract Act, 1872.



Contracts Contingent on an Event not happening within a Specific Time. Contingent contracts might be based on the non-happening of an uncertain future event within a fixed time. In such cases, the promisor is liable to do or not do something if the event does not happen within the said time. The contract can be enforced by law if the fixed time has expired and the event has not happened before the expiry of the time. Also, if it becomes certain that the event will not happen before the time has expired, then it can be enforced by law. This rule is specified in Section 35 of The Contract Act, 1872.



Contracts Contingent on an Impossible Event. If a contingent contract is based on the happening or non-happening of an impossible event, then such a contract is void. This is regardless of the fact if the parties to the contract are aware of the impossibility or not. This rule is specified in Section 36 of The Contract Act, 1872.

HPA International v. Bhagwandas Fateh Chand Daswani & Ors. CaseIn this case, due to the likelihood of coercive recovery of public dues by attachment and sale of property by public auction, sale of property was necessitated and defendant entered into an agreement with plaintiff for purchasable of above said property on certain terms. Firstly: the seller was to surrender entire interest in suit property to vendee, inclusive of his own life interest which of reversioners free from all encumbrances, against sale consideration. Secondly: the seller was to urge the sanctions of the Court purchasable of interest of reversioners within the property at his own expenses. Thirdly: In court’s refusal to grant sanction, the vendor was to return back the earnest paid by vendee on account of the agreement standing cancelled. Though the vendor filed a suit in court for seeking the aforementioned sanction but two reversioners objected to an equivalent and in sight of prolonged proceedings and pressing demands from tax authorities for payment of public dues. Therefore, the seller abrogated the agreement and instructed his lawyer to withdraw the suit. Even when replying to the alleged ‘breach’ of contract by vendor, vendee didn’t express desire to get the life interest of the vendor alone without insisting on performance of the whole obligation as in contract. However, the suit wasn’t withdrawn but was joined by vendee as coplaintiff. So, it had been only after vendee requesting the said court to grant him only life interest of the vendor, leaving aside his earlier claim for interest of reversioners also, was the said suit declared as infructuous. The vendee filed this appeal for obtaining a decree for performance against vendor and reversioners. The issue was:  

Whether during the pendency of the suit for sanction, actions on the part of the seller like terminating contract by notice, instructing lawyer to withdraw the suit, amounted to breach of the contract? Whether the performance of obligation of the vendor to transfer his solitary title also arose upon the sanction of the Court and not otherwise?

It was held in this case that it had been in contemplation of parties that transfer of the whole interest was conditional upon sanction of the Court being granted, hence, the requirement of the vendor to transfer his own title was also subject to sanction of the Court unless varied by agreement. Since such variation never happened nor was asked by the vendee even during initiation of Court proceedings. Therefore, it’ll be inequitable for vendors to be compelled to offer performance.

Reciprocal Promises. A Contract consists of reciprocal promises when one party makes a promise (to do or not to do something in the future) in consideration of a similar promise (to do or not to do something in the future) made by the other party. Such a contract is an exchange of promises. In most commercial contracts, two or more parties typically undertake to perform certain obligations face to face each other. Such obligations could be in the nature of reciprocal promises i.e., promises which form part or the entire consideration for each other. The performance of one party's obligation is dependent upon the other party fulfilling its express or implied obligation. The principles of reciprocal promise often assume significance in government contracts (energy, infrastructure, etc.) where the government entity has certain critical obligations which may or may not be expressly captured in the agreements. Even if these are captured, the order and sequence may be unclear leading to a long and expensive dispute resolution process. Reciprocal promises can be of three types  

Mutual and Independent: When the promises are to be performed by each party independently, without waiting for the other party to perform his promise. Conditional and Dependent: When the performance of one party depends on the prior performance of the other party. Mutual and Concurrent: When the promises are to be performed simultaneously.

Rules Regarding Reciprocal Promises









Simultaneous Performance of a Reciprocal Promise (Section 51) - Some contracts consist of a reciprocal promise or promises which are to be performed simultaneously. In such cases, there is no obligation on the promisor to perform his promise unless the promisee is willing to perform his reciprocal promise. Like in the shop where, someone hands over the cash in exchange the shopkeeper gives the products he wants. A Sequence of Performance of a Reciprocal Promise (Section 52) - When a contract includes a reciprocal promise, the parties might agree upon the order in which the promises are performed. If that is the case, then the order, as mentioned in the contract should be followed. However, if the contract does not specify any such order, then the order of performance of the reciprocal promises is determined based on the nature of the transaction. One party preventing the other from the Performance of the Promise (Section 53) - In a contract consisting or reciprocal promises, if one party prevents the other from performing the promise, then the prevented party has the option of voiding the contract. Also, the prevented party can claim compensation from the obstructing party for any loss that he might sustain due to non-performance of the contract. Reciprocal and Dependent Promises (Section 54) – Assuming a contract where the reciprocal promises are dependent on each other. If the promisor who is supposed to perform his promise before the other, fails to perform it, then he cannot claim the performance of the reciprocal promise. He is also liable to compensate the other party for any loss that he might sustain due to nonperformance of the contract. Failure to perform within the stipulated time in a time-sensitive contract (Section 55) - In a contract, where the intention of both the parties is that time is of the essence and that the promisor should perform the promise within a specific time, and the promisor fails to do so, then he is liable to pay compensation to the promisee for any loss sustained by him due to the failure.







Impossible or Unlawful Act (Section 56) - If two parties enter a contract, where the promisor agrees to do an impossible or unlawful act, then the contract is void. The act can be impossible or unlawful at the time the contract was made or subsequent events can make a possible act impossible . If both the promisor and promisee are aware that the act is impossible or unlawful, then the contract is void. It is possible that when the contract was made, the promise was possible and lawful. However, subsequent events made it impossible or unlawful and the promisor could not prevent it. In such cases, the contract is void from the moment the act becomes impossible. Reciprocal Promise of Legal and Illegal Acts (Section 57) - If two or more people entering a contract consisting of a reciprocal promise, where they first do certain things which are legal and then, under certain circumstances, agree to do acts which are illegal. In such cases, the first set of promises is a valid contract but the second set is void. Alternative Promise of Legal and Illegal Acts (Section 58) - It is possible to make a contract with an alternative promise. If one branch of the alternative promise is legal and the other is illegal, then only the legal branch can be enforced. For example, X and Y enter a contract where Xagrees to pay off Y’s outstanding loan of TK 20 lakh taken from A. If X cannot repay the amount them he will kill A. In this case, the contract is valid for X’s promise of repaying the loan. However, the alternative branch is illegal and hence, void.

Saradamani Kandappan v. S. Rajalakshmi & Ors. Plaintiff entered into contract for purchase of certain mortgaged properties with defendant on following terms: first, that the execution of sale deed shall be at the convenience and desire of plaintiff; subject to her satisfaction of title to the land and nil encumbrance; second, absolute obligation to pay sale price on specific dates, expressly and unequivocally mentioned to be the essence of the contract, by plaintiff failing which defendants could cancel the deed; third, if plaintiff finds title to be unsatisfactory or unacceptable then defendant will be obliged to pay back the entire money received. Plaintiff didn’t pay the entire sale consideration within stipulated time and defendant cancelled the deed alleging that plaintiff had satisfied herself of title to property at the time of entering into agreement and till execution of deed they were not obliged to give her original papers of title of property, upon which plaintiff denied any satisfaction of title to the property and alleged the repudiation as breach while demanding specific performance in Court.  Whether the time stipulated for payment of balance consideration essence of the contract and whether defendants justified in cancelling the sale deed on its not being adhered to?  Whether the parties had agreed upon sequence of performance, which required payment of balance consideration only after defendants satisfied plaintiff regarding their title to the lands? Normally in regard to contract for sale of immovable properties, it is presumed that time is not the essence of contract, but such a presumption is rebutted either if the terms of the contract unequivocally state that time is the essence or if implied intention of parties, determined by express terms or surrounding circumstances, is so. Even when a reason is stated as to whether time should be the essence of the contract, say, need to repay a particular loan before a particular date to obtain clear title of the property at sale, time will be considered the essence of contract.

If time isn’t the essence, then contract needs to be performed within a reasonable time determined from express terms of the contract, nature of the contract, from the surrounding circumstances, as for e.g.: object of making the contract. The court observes that the clear intention of the parties was to make time the essence for payment of balance consideration: first of all, time was unequivocally stated to be the essence for such payment, secondly, even a day’s delay was impermissible lest that day should be a holiday, thirdly, it was intended to be unconditional as could be deduced from express terms of contract. Further, there was a conscientious effort to delink the payment of balance consideration and execution of sale deed, latter being at the option of purchaser and upon her satisfaction of clear title. Hence, time was essence only for payment of consideration and not for execution of sale deed. There is no such express fixation of order in which reciprocal promises were to be performed. Though it was expressly stated that execution of deed shall depend on satisfaction of clear title but nothing of that sort was stated for payment of balance consideration. Instead it was stated as unequivocally unconditional obligation on part of buyer. In fact if the intention of the parties was that only after vendors’ satisfying the vendee of his clear title to the property shall the balance consideration be payable by latter, the situation stipulated in contract, as to obligation of defendant to return all monies paid to her, if plaintiff did not find the title acceptable, would not arise. Rather, it was expressly intended by parties that upon unconditional payment of sale consideration within stipulated time by vendee shall vendor be obliged to execute the sale deed, at the option of vendee. In these circumstances, Section 52 is of avail instead to the defendants.

Quasi ContractA quasi contract is a retroactive arrangement between two parties who have no previous obligations to one another. It is created by a judge to correct a circumstance in which one party acquires something at the expense of the other. The contract aims to prevent one party from unfairly benefiting from the situation at the other party's expense. These arrangements may be imposed when goods or services are accepted, though not requested, by a party. The acceptance then creates an expectation of payment. A quasi contract, or an “implied-in-law” contract, may offer less recovery than an implied-in-fact contract. This is because an implied-in-fact contract lays out the terms of an agreement in its entirety, as the parties initially intended, even if only in a verbal agreement. As a result of an implied-in-fact contract, a party may be entitled to recover any and all expected profits, as well as the cost of any labor and materials he may have laid out to complete the project. For example- X and A enter a contract under which X agrees to deliver a basket of fruits at A’s residence and A promises to pay TK 1,500 after consuming all the fruits. However, X erroneously delivers a basket of fruits at Y’s residence instead of A’s. When Y gets home he assumes that the fruit basket is a birthday gift and consumes them. Features of a Quasi Contract  It is usually a right to money and is generally (not always) to a liquated sum of money  The right is not an outcome of an agreement but is imposed by law.  The right is not available against everyone in the world but only against a specific person(s). Hence it resembles a contractual right. Cases to be deemed under The Contract Law 1872Sections 68 – 72 of The Contract Act, 1872 detail five circumstances under which a quasi-contract comes to exist. It is remembered that there is no real contract between the parties and the law imposes the contractual liability due to the peculiar circumstances.  Necessaries Supplied to Persons Incapable of Contracting - Assuming a person incapable of entering into a contract like a lunatic or a minor. If a person supplies necessaries suited to the condition in life of such a person, then he can get reimbursement from the property of the incapable person.  Payment by an Interested Person - If a person pays the money on someone else’s behalf which the other person is bound by law to pay, th...