Contingent and Quasi-Contracts: Concepts and Examples
Contracts are, in essence, rights of parties intending to carry out business, trade, and personal dealings. These cannot always, however, be of the common form whereby two parties mutually agree to certain prescribed terms, for there are those that depend on future events. In contrast, others arise by some legal obligations for preventing unjust enrichment. These two types of contracts- contracting and quasi-contracts- are very dependent on mechanisms of the law itself found in various countries around the world.
This blog seeks to discuss these two types of contracts; contingent and quasi Contracts basic principles, examples, and differences from normal contracts.
Understanding Contingent Contracts
A contingent contract is a sort of contract that can depend on the occurrence or non-occurrence of a future event that is uncertain. According to Section 31 of the Indian Contract Act, of 1872:
A contingent contract is a contract to do or not to do something upon the occurrence or non-occurrence of an event, collateral to such contract.
In layman’s terms, a contingent contract can only be enforced when a certain event occurs. Until that designated event occurs (or does not occur), the contract is suspended.
Characteristics of Contingent Contracts
- Condition on a Future Event: A condition to the performance of the contract refers to any event that may or may not happen in the future.
- Uncertainty: Whether or not the event occurs is uncertain.
- Collateral Event: The occurrence of the event must not be in the hands of either of the contracting parties and should be external.
- Conditional Enforceability: The contract shall only be enforceable after the event has taken place.
Examples of Contingent Contracts
- Insurance Contracts: A car insurance policy is a contingent contract. The insurance company agrees to compensate the policyholder only if an accident occurs. If no accident happens, the company has no obligation.
- Lottery and Betting Agreements: A person buying a lottery ticket enters into a contingent contract, as they will receive the prize money only if their ticket number is drawn.
- Performance-Based Agreements: A football coach may sign a contract stating that he will receive a bonus only if the team wins the championship.
Types of Contingent Contracts
- Contracts Dependent on an Event Happening: A shipping company agrees to pay a bonus if goods arrive safely at the destination. If the goods arrive without damage, the contract is fulfilled.
- Contracts Dependent on an Event Not Happening: A construction firm agrees to build a bridge only if the government does not impose new environmental regulations.
- Contracts Based on the Conduct of a Third Party: A company agrees to buy land if a government authority grants approval for its use.
Enforceability of Contingent Contracts
A contingent contract is legally binding only if the event occurs within a reasonable time. If the event becomes impossible (e.g., a promised reward for the discovery of a lost item, but the item is destroyed), the contract becomes void.
Understanding Quasi-Contracts
A quasi-contract is not an actual contract, but an obligation set up by law to prevent unjust enrichment. It arises where one party benefits at the expense of another by some unfairness, and it does so even if there is no formal contract between the parties.
Quasi-contracts are an expression of the legal precept aiming at equity to ensure that between the parties nobody shall be benefited from enjoying an unfair advantage unless the aggrieved party has been compensated for the loss sustained.
Legal Basis of Quasi-Contracts
Section 68-72 of the Indian Contract Act, of 1872, outlines various quasi-contractual obligations. These obligations are recognized under common law as well, where courts impose a duty on one party to compensate another to avoid unjust enrichment.
Characteristics of Quasi-Contracts
- Absence of Agreement: Unlike regular contracts, there is no prior agreement between the parties.
- Legal Obligation: The obligation is created by law rather than by mutual consent.
- Unjust Enrichment Prevention: The purpose is to prevent one party from unfairly benefiting at another’s expense.
- Monetary Compensation: The party receiving an unfair advantage must compensate the affected party.
Examples of Quasi-Contracts
- Supply of Necessities: When a person incapable of giving consent is provided food, shelter, or medical aid, the supplier may recover reasonable expenses from his or her estate.
- Payment Made Under Mistake: Where a person mistakenly pays the bill of another person, that person shall be entitled to claim back the sum so paid.
- Finder of Lost Goods: A person who finds someone’s lost wallet has the legal obligation to return the wallet, whereas the owner must pay for those reasonable costs of keeping the property.
- Non-Gratis Services: When a person unknowingly receives a service, he/she may be obligated to compensate the service provider.
Types of Quasi-Contracts
- Obligation of a Person Receiving Benefits Without Intent: If someone receives money or goods mistakenly, they must return them or compensate the rightful owner.
- Responsibility of a Finder of Goods: A person who finds lost property must take reasonable care of it and attempt to return it.
- Payment of Money by Mistake or Coercion: If someone is forced to make a payment they were not legally required to, they can claim a refund.
Differences Between Contingent and Quasi-Contracts
Contracts are all about transactions and agreements, they make sure the parties involved do what they were supposed to. Nonetheless, some contracts are not simple agreements with two parties. Some contracts depend on future events; some are concerned with the behaviour that has to be carried into effect only by law, so as not to gain an unfair advantage. The two types of contracts are contingent contracts and quasi-contracts, serving different legal purposes.
Both of these agreements are recognized in contract law as more or less the same but differ widely in their nature enforceability and legal consequences. This article explores the key differences between contingent contracts and quasi-contracts to provide a clear understanding of their applications.
1. Definition and Nature
A contingent contract is a formal commitment in which the performance of the obligations is dependent upon an uncertain future event or non-event. Such a contract is, in other words, a conditional one- it will be enforceable only if a certain event occurs or does not occur. For example, in an insurance contract, the insurer undertakes the payment to the insured only in the case of the occurrence of specified events (accident or fire).
On the other hand, a quasi-contract is not a real contract but a legal obligation imposed by law. A quasi-contract arises in such a situation if one party has been unfairly enriched at the expense of another; hence an obligation to compensate the affected party to prevent unjust enrichment arises within the law. To illustrate, if one person has mistakenly been paid money that was not intended for him, he must return it.
2. Formation and Legal Basis
A contingent contract is one, that is created through mutual agreement between the parties, the enforceability of which, however, depends on some event that is uncertain to occur in future. They fall under Section 31 of the Indian Contract Act, of 1872, where they are defined as contracts that depend upon the occurrence of collateral events.
Quasi-contracts are not naturally created in contracts but are imposed by law for the sake of justice. The legal nature of quasi-contracts is found in Sections 68-72 of the Indian Contract Act, 1872, involving obligations such as supply with necessities, payment by mistake, and the finders of lost goods.
3. Dependency on an Event
One of the major differences between the two lies in the fact that contingent contracts are founded specifically on a future event, while quasi-contracts are not. A contingent contract cannot be acted upon until the event concerning the contract takes place; if it does not take place, the contract never becomes effective.
On the other hand, quasi-contracts have no such uncertain event to rely on. Instead, they come into play at the instant the presence of a benefit is discovered and deemed to be of unjust advantage to one. The law gives redress to the beneficiary party a noncontractual one so that the unjust enrichment ceases.
4. Example Scenarios
To better understand the differences, consider the following examples:
- Contingent Contract Example: A company enters into a contract with a supplier stating that they will.
- Quasi-contracts prevent unjust enrichment by imposing legal obligations in the absence of a formal contract.
Conclusion
Contingent contracts and quasi-contracts are of vast importance in contract law in cases when standard contracts are insufficient. Though contingent contracts are dependent on future events and mutually agreed upon, quasi-contracts arise from obligations imposed by the law to prevent unjust enrichment.
If these legal concepts are firmly understood, businesses, individuals, and the legal community will be in a better position to navigate their contractual relationships with insight. Rectitude and reason should bolster all parties’ standing daily game and should ensure fair and legal transactions.
Would you like to explore specific case laws or real-world examples of contingent and quasi-contracts? Let us know in the comments!
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