Contingent Contract,Idemnity

7/31/2019 Contingent Contract,Idemnity

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Contingent Contract


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"A contingent contract is a contract to do or not to do something, ifsome event collateral to such contract does or does not happen".55Example: A contracts to indemnify B upto Rs. 20,000 in considerationof B paying Rs. 1,000 annual premium, if B's factory is burnt. This is acontingent contract. Contracts of insurance and contracts of indemnity

and guarantee are other examples of contingent contracts.

3.14.2 Essentials of Contingent Contract

The essential features of a contingent contract are as follows:

a. Dependence on a future event: The performance of a contingent

contract depends upon the happening or non happening of somefuture event.

b. Collateral event: The event must be collateral (i.e. incidental) tothe contract.

c. Uncertain event- The event must be uncertain.


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Rules regarding Contingent Contracts

a. Enforcement of contracts contingent on happening of a future uncertainevent. Contingent contracts to do or not to do anything if an uncertainfuture event happens can be enforced only when the event happens.

Illustration

A makes a contract with B to buy B's house if A survivesB. This contract cannot be enforced by law unless and until

C dies in A's lifetime.

b) Enforcement of contracts on the non-happening of a future uncertainevent .Contingent contracts to do or not to do anything if an uncertainfuture event does not happen can be enforced only when the happening

of the event becomes impossible, and not before.Illustration

A agrees to pay B a sum of money if a certain ship does not return. The ship issunk. The contract can be enforced when the ship sinks.


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c. Contracts contingent on future conduct of a living person"If the future event onwhich a contract is contingent is the way in which a person will act at anunspecified time, the event shall be considered to become impossible when suchperson does anything which renders it impossible that he should so act withinany definite time, or otherwise than under future contingencies.

illustration

A agrees to pay B a sum of money if B marries C. C married D. The marriage of B to Cmust now be considered impossible although it is possible that D may die and that Cmay afterwards marry B.

d) Contracts contingent on a specified event happening within a fixed time:"Contracts contingent to do or not to do anything if a specified uncertain eventhappens within a fixed time would become void if, at the expiration of the timefixed, such event does not happen or if before the time fixed, such event

becomes impossible.Illustration

A promises to pay B a sum of money if a certain ship returns within a year.The contract may be enforced if the ship returns within the year, and becomes void ifthe ship is burnt within the year.


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e) Enforcement of contingent contracts on specified event not happeningwithin a fixed time'"Contingent contracts to do or not to do anything ifa specified uncertain event does not happen within a fixed time, may beenforced when such event has not happened, or shall not happen withinthe time fixed.

Illustration

A promises to pay B a sum of money if a certain ship does not return within ayear. The contract may be enforced if the ship does not return within the year,or is burnt within the year.

f) Agreements contingent on impossible eoenis:"Contingent agreements todo or not .to do anything if an impossible event happens, are void.

Illustration

A agrees to pay B Rs. 1,000 if B will marry A's daughter, C. C was dead atthe time of the agreement. The agreement is void.


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Quasi-Contract

Meaning of Quasi-Contract

A Quasi-Contract is not a contract at all because theessential elements for the formation of a contract are

absent. It is an obligation imposed by law upon a personfor the benefit of another even in the absence of acontract. It is based on the principle of equity, (i.e.,fairness, moral justice or ethics) which means no personshall be allowed to unjustly enrich himself at the expenseof another. Such obligations are called quasi-contracts orimplied contracts because the outcome of suchobligations resemble those created by a contract.


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Kinds of Quasi-Contracts

The various kinds of quasi contract (or quasi-contractual obligations) are given below:

a. Claim for necessaries supplied to a person incapable of contracting or on hisaccount:

"If a person, incapable of entering into a contract, or anyone whom he is legallybound 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 bereimbursed from the property of such incapable person.

Example: A supplies the wife and childrenof B, a lunatic, with necessaries suitable to their condition in life. A is entitled tobe reimbursed from B's property.

b. Reimbursement of person paying money due by another, in payment of which heis interested: "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 bereimbursed by the other". For example: A, sub-tenant pays the arrears of rentdue by the tenant to the landlord,


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b. in order to save the tenancy from forfeiture. The sub-tenant is entitled to recover from the tenant, theamount paid by him to the landlord, although there isno contract between the two.

c. Obligation of person enjoying benefit of non-gratuitous act: "Where a person lawfully doesanything for another person, 0r delivers anything tohim, not intending to do so gratuitously, and suchother person enjoys the benefit thereof, the latter is

bound to make compensation to the former inrespect of, or to restore,the thing so done or deliverer's' For example: A, atradesman, leaves goods pay A for them.


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e) Responsibility of finder of goods: "A person who finds goodsbelonging to another and takes them into his custody, is subject tothe same responsibility as a bailee".

For example: X a guest found a diamond ring on a birthday partyof Y. X told Y and other guests about it. He has performed his duty

to find the owner. If he is not able to find the owner he can retainthe ring as bailee.

e) Liability of person to whom money is paid, or thing delivered bymistake or under coercion: "A person to whom money has beenpaid, or anything delivered by mistake or under coercion, mustrepay or return it".

For example:

A and B jointly owe Rs. 1000 to C. A alone pays the amount to C, and B,not knowing this fact, pays Rs. 1000 over again to C. C is bound torepay the amount to B.


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Performance of Contracts

Meaning of Performance

Performance of contract means fulfilling of the terms of the contractby the respective parties to the contract. The Act lays down "Theparties to a contract must either perform, or offer to perform, theirrespective promises, unless performance is dispensed with or excused

under the provisions of this Act, or of any other law". 67 It means thatthe performance may be either actual - by fulfilling all obligations bythe parties under the contract or attempted where an offer to performone's obligations has been made by the promise, but the performanceis not complete unless the offer of performance is accepted by thepromise. Such offer to perform one's obligation under a contract is

called tender. The second part of the definition lays down that theparties are excused from performance under the provisions of this Actor any other law. For example, an insolvent is excused from performinghis part of the contract by law.


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Promises bind the legal representatives of the promisors in case ofdeath of such promisors before performance, unless a contraryintention appears from the contract. The liability of the legalrepresentative is limited to the extent of the value of the propertyinherited from the deceased.

IllustrationsA promises to deliver goods to B on a certain day on payment of Rs.1,000.

A dies before that day. A's representatives are bound to deliver thegoods to Band B is bound to pay Rs. 1,000 to A's representatives.

A promises to paint a picture for B by a certain day, at a certain price. Adies before the day. The contract cannot be enforced either by A'srepresentatives or by B.


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Who can demand performance

It is only the promisee who can demand performance of the promise.The general rule is that "a person cannot acquire rights under acontract to which he is not a party. "68

3.16.3 Who should perform the promise?

a. In case of personal contract by the promisor personally.b. In case of non-personal contract:

i. By the promisor personally.

ii. By a third person on behalf of the promisor.

iii. In the event of the death of promisor - by his legal representatives.

c) In case of Joint promisor - by the promisors jointly or third personon behalf of the promisors or their legal representatives.


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Remedies for Breach of Contract

Meaning of Breach of Contract

A breach of contract occurs if any party refuses or

fails to perform his part of the contract or by his act

makes it impossible to perform his obligation under

the contract. In case of breach, the aggrieved party

(i.e., the party not at fault) is relieved from

performing his obligation and gets a right toproceed against the party at fault. A breach of

contract may either be anticipatory or actual.


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Remedies of Breach of Contract

A remedy is the courses of action which are available to an aggrievedparty for the enforcement of a right under a contract. The variousremedies available are:

Rescission of Contract": Rescission means a right not to perform

obligations.In case of breach of a contract, the promisee may put an end to thecontract. In such a case, the aggrieved party is discharged from all theobligations under the contract and is entitled to claim compensationfor the damage which he has sustained because of the non-performance of the contract.

Suit for Damages: Damages are monetary compensation allowed forloss suffered by the aggrieved party due to breach of contract.Damages may be of five kinds:


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I. Ordinary or general or compensatory damages: (i.e., damages arisingnaturally from the breach).

II. ii. Special damages: (i.e., damages in contemplation of the parties at thetime of contract).

III. iii. Exemplary, Punitive or Vindictive damages: (i.e., damages which arein the nature 'of punishment).

IV. iv. Nominal damages: (i.e., awarded only for the namesake).

V. Liquidated damages: Means a sum fixed up in advance, which is a fairand genuine pre-estimate of the probable loss that is likely to resultfrom the breach. _

c) Suit for Specific Performance: Means demanding the court's direction tothe defaulting party to carry out the promise according to the terms of thecontract. For example: X agreed to sell an old painting to Y for Rs. 50000.Subsequently X refused to sell the painting. Here, Y may file a suit againstX for the specific performance of the contract.


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d) Suit for Injunction: Means demanding court's stay order Injunctionmeans an order of the court which prohibits a person to do aparticular act. For example: W agreed to sing at L's theatre onlyduring the contract period. During the contract period, W madecontract with Z to sing at another theatre and refused to performthe contract with L. It was held that W could be restrained byinjunction from singing for Z.

e) Suit for Quantum meruit: Quantum-meruit means as much as isearned. In this suit, claim is made to compensate for the workalready done. For. example: C an owner of a magazine engaged Pto write a book to be published by installments in his magazine.

After a few installments were published, the publication of themagazine was stopped. It was held that P could claim payment forthe part already published.


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Indemnity and Guarantee

Contract of Indemnity

Meaning

The term 'Indemnity' means to make good the loss or to compensatethe party who has suffered some loss. "A contract by which one partypromises to save the other from loss caused to him by the conduct of

the promisor himself, or by the conduct of any other person, is called acontract of indemnity"." For example:

A and B go into a shop. B says to the shopkeeper "Let A have thegoods, I will see that you are paid". The contract is one of Indemnity.

Parties

The person who promises to make good the loss is called the'Indemnifier' (promisor), and the person whose loss is to be madegood is called the 'Indemnified or Indemnity holder' (promisee).


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Kinds of Guarantee

Guarantee may be classified under the following twocategories:

Specific Guarantee: A guarantee which extends to a singledebt or specific transaction is called a 'specific guarantee'.The liability of the surety comes to an end when theguaranteed debt is duly discharged or the promise is dulydischarged. Continuing Guarantee: A guarantee which

extends to a series of transactions is called a 'continuingguarantee'. A surety's liability continues until therevocation of the guarantee.


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Discharge of Surety from Liability

A surety is said to be discharged when his liability as surety comes toan end. A surety is freed from his obligation under a contract ofguarantee under any of the following circumstances:

a. Notice of revocation: A specific guarantee cannot be revoked once

it is acted upon. But a continuing guarantee may at any time, berevoked by the surety as to future transactions by giving notice tothe creditor.?'

b. Death of Surety": In case of a continuing guarantee the death of asurety also discharges him from liability as regards transactionsafter his death, unless there is a contract to the contrary.

c. Variance in terms of contract": Any variance made without thesurety's consent, in the terms of the contract between theprincipal debtor and the creditor, discharges the surety as totransactions subsequent to the variance.


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d) Release or discharge of principal debtor: The surety is discharged by anycontract between the creditor and the principal debtor, by which theprincipal debtor is released, or by any act of omissions of the creditor,the legal consequence of which is the discharge of the principal debtor.

e) Arrangement by creditor with principal debtor without surety's consent":A contract between the creditor and principal debtor, by which creditor

makes a composition with, or promises to give time to, or not to sue theprincipal debtor, discharges the surety, unless the surety assents to suchcontract.

f) Creditor's act or omission impairing surety's eventual remedv": If acreditor does any act which is inconsistent with the rights of the surety,or omits to do any act, which is his duty to the surety requires him to do,

and the eventual remedy of the surety himself against the principaldebtor is thereby impaired, the surety is discharged ..

g) Loss of Surety": If the creditor loses (by negligence or carelessness) OJ'without the consent of the surety, parts with security given to him, thesurety is discharged from liability to the extent of the value of security


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Documents

Contingent Contract,Idemnity