CONTINGENT CONTRACT

• A Contingent contract implies a contract, the performance of which is dependent upon, the happening or non-happening of an uncertain event.

• The performance of a contingent contract becomes due only on the happening or un-happening of some event.

• Examples: contracts of insurance, indemnity and guarantee are common instances of contingent contracts.

• ESSENTIALS OF A CONTINGENT CONTRACT :

– There must be a valid contract

– The performance of the contract must be conditional

– The condition must relate to a future event which, may or may not happen

– The event should be collateral to the contract

– If the circumstances have rendered the occurrence or the non-occurrence of that contingency

impossible, the contract becomes void e.g ‘X’ promises to pay ‘Y’ Rs 2000 if Y touches the sky with

his finger, the contract is void

• The contingent event is of uncertain nature. A contract which is subject to a certain or an absolute type of condition, cannot be regarded as a contingent contract

example : ‘A ‘agrees to deliver to ‘B’ a certain quantity of cement, should the government lift the ban on free trading of cement, is a contingent contract, for the event – lifting of the ban in this case , may or may not occur

• The uncertain event upon which the performance of a contingent contract depends is collateral or incidental to the contract ( it does not form part of the consideration of the contract and is independent of it )

example : ‘A’ a contractor agrees to construct a shop for ‘B’ and the latter agrees to pay the former Rs 10000 upon the completion of construction, the contract is merely a conditional one and not contingent. If ‘B promises to pay ‘A’ the said amount , provided ‘A’ could complete the construction within a week, the deal turns out to be a contingent contract, because completion of construction within a week collateral event , upon the happening of which the contract would be enforced

• The contingency should depend upon the will of the promisor or the promisee, it should not be mere under the will of the promisor

example : where ‘A’ agrees to construct a swimming pool for ‘B’ and ‘B’ agrees to pay ‘A’ Rs 20000 upon the completion of construction work provided his architect approves the construction is a contingent contract

• ENFORCEMENT OF CONTINGENT CONTRACTS : – CC about doing or not doing anything if an uncertain future event happens cannot be enforced by

law unless and until that event has happened. If the event becomes impossible , such contracts becomes void

– Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to agreement when it is made

example: ‘A’ agrees to pay ’B’ Rs 1000 , if ‘B’ will marry ‘A’ s daughter ‘C’. ‘ C’ was dead at the time of agreement . The agreement is void.

• CC to do or not to do anything , if a specified uncertain event happens within a fixed time, becomes void if, at the expiration of the time fixed, such event has not occurred , or if, before the time fixed , such event becomes impossible

– Example : ‘A’ promises to pay ‘B’ a fixed 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 if the ship is destroyed during the year.

Wagering contract

• A wager is an agreement to pay money or money’s worth on the happening of a specified uncertain event

• Wager means a bet. It is a game of chance ( the chance of either winning or losing is wholly dependent upon an uncertain event

• Each party stands equally to win or lose the bet• One of the essential ingredients of wagering contract is that neither of the parties

should have any interest in the contract other than the sum which will win or lose • A lottery is a wagering transaction and hence it is illegal and punishable • Examples agreements by way of wager : lottery, gambling & competition where

prizes depend upon chance

– Suppose ‘X’ and ‘Y’ take a bet that if it rains tomorrow, ‘Y’ will pay ‘x’ Rs 500 and if it does not rain tomorrow ‘X’ will pay ‘Y’ Rs 500 . This is a wagering contract .

ESSENTIALS OF A WAGERING AGREEMENT

• Uncertain event game of chance -> uncertainty of the event. The performance of the bargain must depend upon the ascertainment of an uncertain event

• Mutuality there must be mutual chances of gain and loss ( each party should stand to win or loss )

• Neither party to have control over the happening of the event one way or the other

• Neither party should have any other interest in that contract other than the sum or stake he will win or lose

CONSEQUENCES OF WAGERING AGREEMENTS

• Agreements by way of wager are void and no suit shall be brought for recovering anything alleged to be won on any wager

• Agreements by way of wager unenforceable and are null, as they are considered being opposed to public policy

• In india wagering agreements are simply void, but not illegal

• In states of maharastra and gujarat wagering agreements are declared as illegal – ‘A’ borrows Rs 1000 from ‘C’ to pay to ‘B’ , t whom he has lost a bet. The agreement between ‘A’ and

‘C’ is invalid if the transaction took place in maharastra and gujarat. Accordingly ‘C’ cannot recover the amount from ‘A’ because this is the money paid in connection with a wagering agreement, which is illegal in these two states. But as regards rest of india, such a transaction (betting ) being only void, the agreement between A and C would be valid

EXCEPTIONS OF WAGERING AGREEMENTS

• Horse –race : winners of any horse race shall not be void or winners is not deemed illegal in the eyes of the law, provided the sum is Rs 500 or more

• Prize competitions : an agreement to subscribe or contribute towards a prize to be awarded to the winner of a lawful game would be perfectly lawful and enforceable under the law, though dependent on the outcome of an uncertain event

• Contract of insurance : cannot be recognizes as wagers. In a contract of insurance , the insurer’s object is to preserve himself/herself from financial loss is called insurable interest., and not to arrange that he/she should gain or someone else should lose, if an uncertain event turns out in a particular way. An insurance contract could sometimes turn out to be a wager if the party insuring has no insurable interest

DIFFERENCE BETWEEN A WAGER & CONTINGENT CONTRACT

• Wagering contracts are void, but contingent contracts are good if they are not declared by law to be bad .

• In a wagering contract neither of the parties should have any interest in the contract except for the stake. In a contingent contract the parties should have interest on the happening or non-happening of the event

• In a wagering contract, there must be mutual promises, but in a contingent contract mutual promises are not necessary

• In the case of a wagering contract the parties have no intention to perform the contract itself. But in a contingent contract the parties have an intention to perform their respective obligations

QUASI CONTRACT

• Quasi means ‘as if’

• In a quasi contract there is no real contract , arising from the meeting of the minds, but the law attributes to a particular situation and the consequences which are similar to those of a contract.

• Under english law , quasi contract is an obligation which the law creates in the absence of any agreement

• Quasi contracts as ‘certain relations resembling those created by contract’

• A quasi contract rests on the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another

• QC maxim: Nemo debet locuplatari ex lina justua No man must grow rich out of another person’s loss.

• Winfield defines QC : as a liability, not exclusively referable to any other

head of law, imposed on a particular person to pay money to another on

the ground of unjust benefit.

• Jenks defines QC: a situation in which law imposes upon one person on

grounds of natural justice, an obligation similar to that which arises from a

true contract, although no contract, express or implied, has infact been

entered into by them

INSTANCES OF QUASI CONTRACTS

• Necessaries supplied : a person who supplies the necessaries to an incompetent person, is entitled to be reimbursed from the property of such incompetent person even if there is no contract between them

• Suit for the recovery of money : the right to file a suit for the recovery of money may occur under the following conditions :

– Where the plaintiff paid money to the defendant :*under a mistake *in pursuance of a contract the consideration for which has

failed *under coercion, oppression, extortion or such other means. Example : ‘A’ pays Rs 1000 to ‘B’ by mistake . It is really due to ‘C’.

‘B’ must refund the money to ‘A’. ‘C’ however cannot recover the amount as there is no privity of contract between B and C.

A debtor may recover from a creditor any excess payment made to him by mistake. The mistake may be one of facts or of laws

– Payment of money to a third party which another is bound to pay :* in order to recover, the plaintiff ( pretender) must have been

compelled by the law to pay or the plaintiff has an interest in the payment

• Money obtained by the defendant from third parties on the plaintiff’s account :* where an agent has got a secret commission or a fraudulent payment

from a third party, the principal can recover the amount from the agent• Quantum meruit : means ‘as much as he deserves’

A claim for the recovery of reasonable remuneration may be enforced even if there is no express agreement provided the services are not intended to be gratuitous.

• Obligation of finder of lost goods :a person who finds goods belonging to another and takes them into his

custody is bound to account for the goods to the owner. If the owner is traced, he must return the goods to him. The finder his entitled to get any reward that may have been offered by the owner, and also any expenses he may have incurred in protecting the property.

• Obligation of person enjoying benefit of non-gratuitous act :where a person lawfully does anything for another. Or delivers anything to

him intending to do so gratuitously, and when such an another person enjoys the benefit thereof the latter is bound to make compensation to the former in respect of or to restore, the thing so done or delivered.– Example: ‘X’ a merchant leaves some goods at the house of ‘Y’ by mistake. ‘Y’ treats the goods as his

own. He is bound to pay ‘X’ for them

THE SALE OF GOODS ACT 1930

•This act came in to force on 1st july 1930

•The act extends to the whole of india except the state of jammu & kashmir

• The sale of goods is the most common of all commercial contracts

• Contracts for the sale of goods are subjected to the general legal principles

applicable to all contracts – offer & acceptance, capacity of the parties, free

& real consent, consideration and legality of the object

FORMATION OF CONTRACT OF SALE

• A contract of sale of goods is a contract whereby the seller transfers or agrees

to transfer the property in goods to the buyer for a price

• The term COS is a generic name or term and includes both sale + agreement to

sell : COS = S + A to sell

• Where under a COS, the property in the goods is transferred from the seller to

the buyer, the contract is called a ‘sale’

• Where the transfer of the property in the goods is to take place at a future time

or subject to some conditions thereafter to be fulfilled, the contract is called an

‘agreement to sell’

• An agreement to sell becomes a sale, when the time elapses or the conditions,

subject to which the property in the goods is to be transferred are fulfilled

ESSENTIALS OF A COS

• Two parties : buyer + seller . Buyer means a person who buys or agrees to

buy goods, seller means a person who sells or agrees to sell goods . These

two terms are complementary. Two parties must be competent to contract

• Goods : there must be goods ( the property which is to be transferred

from the seller to the buyer ). The goods which form the subject matter of

COS must be movable. Transfer of immovable property is not regulated by

the sale of goods act

• Price : the consideration for the COS called price must be money. when goods are exchanged for goods it is not a sale but a barter. There is however, nothing to prevent the consideration from being partly in money and partly in goods

• Transfer of general property : there must be a transfer of general property as distinguished from special property in goods from the seller to the buyer. E.g if ‘A’ owns certain goods , he has general property in the goods. If he pledges them with ‘B’, ‘B’ has special property in the goods

• Essential elements of a valid contract : all the essential elements of a valid contract must be present in the COS

SALE AGREEMENT TO SELL

• Transfer of ownership of goods takes place immediately

• It is an executed contract because nothing remains to be done

• Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some conditions

• It is an executory contract because something remains to be done

• Consequences of breach :sale – if the buyer fails to pay the price of the goods, the seller can sue for the price even though the goods are still in his possession (seller) AS – if there is a breach of contract by the buyer, the seller can only sue for damages and not for the price, even though the goods are in the possession of the buyer

• Insolvency of seller :sale – the buyer being the owner is entitled to recover the goods

from the official receiver or assigneeAS – if the buyer who has paid the price, the buyer can only claim

a ratable dividend and not the goods because property in them has not yet passed to him

• Insolvency of buyer : sale – if the buyer becomes insolvent before he pays for the goods, the seller in the absence of a lien over the goods, must return them to the official receiver or assignee. He can only claim a ratable dividend for the price of the goods AS – if the buyer becomes insolvent and has not yet paid the price, the seller can refuse to deliver the goods unless he is paid full price of the goods because the ownership has not transferred to the buyer

• Conveyance against property :sale – buyer gets a right to enjoy goods against the whole world

including the seller. Therefore a sale creates jus in rem ( right against property )

AS – buyer does not get such right to enjoy the goods. It only creates jus in personam ( right against the person )

SALE AND CONTRACT FOR WORK & MATERIALS

• A COS contemplates the delivery of goods, whereas a contract for work & materials involves exercise of skill & labour by one party in respect of materials supplied by another ( the delivery of goods being incidental or subsidiary )

E.g A contract involved the repair of a car and the supply of parts for that purpose. Held it was a contract for work and materials

SALE & BAILMENT

• In a sale the property in goods is transferred from the seller to the buyer. In a bailment there is only transfer of possession from the bailor to the bailee. In a sale the buyer can deal with the goods in any way he likes. Th e bailee can deal with the goods according to the directions of the bailor

• The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee

• E.g ‘A’ delivers a piece of cloth to ‘B’ ( a tailor ) to be stiched into a suit. There is a contract bailment between ‘A’ and ‘B’.

SALE AND HIRE-PURCHASE AGREEMENT • A hire-purchase agreement is a contract whereby the owner of the goods

lets them on hire to another person called hirer or hire-purchaser on payment of rent to be paid in instalments and upon an agreement that when a certain number of instalments is paid , the property in the goods will pass to the hirer

• The hirer may return the goods at any time without any obligation to pay the balance rent

• A hire-purchase agreement is not a contract of sale but only a bailment & the property in the goods remain in the owner during the continuance of the bailment ( in other words HPA = B + A (S) )

• E.g ‘B’ hires a piano from ‘H’ on an agreement that ‘B’ should pay $20 a month as rent. The stipulation is that if he regularly pays the rent for 36 months the piano becomes his property at the end of 36 months. Further it is provided that ‘B’ can return the piano at any time and he need not pay any more. This is a hire-purchase agreement.

Sale Hire-purchase agreement

• Sale may be made either orally or in writing

• The ownership of the goods is transferred from the S to B as soon as the contract is made

• The position of the buyer is that of the owner

• The buyer can resell the goods

• The sale of goods act 1930 governs the ‘sale’

• The buyer cannot terminate the contract and as such is bound to pay the price of the goods

• Hire-purchase must be in writing

• The ownership of the goods is transferred from the seller to the hirer only when all the agreed number of instalments is paid

• The position of the hire-purchaser is that of bailee

• The hire-purchaser cannot resell unless he has paid all the instalments

• The hire-purchase act 1972 governs the hire-purchase agreement

• The hire purchaser has an option to terminate the contract at any stage and cannot be forced to pay the further instalments

GOODS - subject matter of COS

• Goods means every kind of movable property other than actionable claims & money.

• Classification of goods : 1.Existing goods : goods which are owned or possessed by the seller at the time of a sale. Only existing goods can be subject of a sale

* Specified goods : these are the goods which are identified & agreed at the time a COS is made e.g specified watch or CTV * Ascertained goods : when part of the goods lying in bulk are identified and enmarked for sale, such goods are identified as ascertained goods

* unascertained goods : these are the goods which are not identified & agreed upon at the time of the COS. They are defined only by description e.g goods in stock or lying in lots

• E.g ‘X’ goes to a maruti car showroom where 10 maruti cars have been displayed. ‘X’ agrees to buy one maruti car 800 and the seller agrees to sell. Here 10 cars will be classified as under:

• 10 cars are unascertained goods before the identification of a particular car to be sold

• 9 cars are unascertained. goods after the identification of 1 particular car to be sold . Such one particular car to be sold is an ascertained goods

• 1 particular car identified and agreed upon at the time when the COS is made is specific goods and other 9 cars are unascertained goods

• FUTURE GOODS : these are the goods which a seller does not possess at the time of the contract but which will be manufactured or produced or acquired by him after th e making of the COS. There can be agreement to sell only. There can be no sale in respect of future goods because one cannot sell what he does not posess

• E.g ‘X’ agrees to sell ‘Y’ all the crops to be grown at his farm in haryana during the year 2009 season for a sum of RS100000. This is an agreement to sell future goods and not a sale

CONTINGENT GOODS

• These are the goods, the supply of which to the buyer depends upon the happening of an event which may be relation to the shipment of goods. If the ship does not arrive before the date fixed for supply of goods to the buyer, then the contract becomes void. Supply of goods depends on the arrival of the ship. Therefore these goods are termed as contingent goods.

• E.g ‘X’ agrees to sell to ‘Y’ all the crops to be grown at ‘Z’s farm in haryana during the year 2009 season for a sum of RS100000, if ‘Z’ sells the same to ‘X’. This is termed as agreement to sell contingent goods because the availability of crops depends on it’s sale by ‘Z’

EFFECT OF DESTRUCTION OF GOODS

• In case of COS ( Sec 7 ) : the COS is void if the following 3 conditions are satisfied : there must be a COS for specifics goods, the goods must have perished or become so damaged as no longer to answer to their description in the contract before making of the contract, the seller must not be aware about the destruction of goods

• In case of an ‘ATS’ ( sec 8 ) : an ATS becomes void if the following 4 conditions are satisfied : there must be ATS specific goods, the goods must have perished or become so damaged as no longer to answer to their description in the agreement, there must not be any fault of seller or buyer , the risk must not have passed to the buyer

DOCUMENT OF TITLE OF GOODS

• A document of title of goods is one which enables it’s possessor to deal with the goods described in it as if he were the owner. It is used in the ordinary course of business as proof of the possession or control of goods

• It symbolises the goods confers a right on the purchaser to receive the goods or to further transfer such right to another person. This may be done by mere delivery or by proper endorsement & delivery

• Conditions to be fulfilled by a DOT to goods : it must be used in the ordinary course of business, the undertaking to deliver the goods to the possessor of the document must be unconditional, the possessor of the document by virtue of holding such document must be entitled to receive the goods unconditionally

• E.g bill of lading, dock warrant, warehouse-keeper’s certificate, railway receipt and delivery order

PRICE OF GOODS• Price means the money consideration for a sale of goods forms an

essential part of the contract. Price must be expressed in money

• Ascertainment of price : 3 modes of determining price * fixed by the contract itself* left to be fixed in an agreed manner* determined by the course of dealing between the parties

• The parties may agree to sell & buy goods on the terms that price is to be fixed by the valuation of a third party.

• Earnest : in a COS the buyer may give some tangible thing as a token of good faith as a guarantee or security for the due performance of the contract. This is known as earnest. If the contract is duly performed or if it is in the form of money it is adjusted against the purchase price.

• If account of negligence or default committed by the buyer, the transaction sale could not be completed the earnest money could be taken over by the seller

• The seller in order to apply the forfeiture clause towards appropriation of earnest money, must prove the loss he has suffered for claiming liquidated damages

• STIPULATION AS TO TIME ( SEC 11 ) :- time with regard to delivery of goods is said to be the essence of

the contract. Time with regard to payment of price will become the essence of the contract, unless the parties concerned, by mutual agreement had fixed a stipulated time within which they have agreed to their obligations respectively e.g transactions involving gold & silver, where prices are prone to fluctuate , time with regard to payment of price is fixed as essence of the contract

CONDITION 12 (1) :

• A condition is a stipulation which is essential to the main purpose of the contract. It goes into the root of the contract. It’s non-fulfillment upsets the vey basis of the contract. It is the obligations which goes so directly to the substance of the contract. In other words, it is so essential to it’s very nature, that it’s non performance may fairly be considered by other party as a substantial failure to perform the contract at all. If there is a breach of condition, the aggrieved party can treat the contract as repudiated ( terminated )

• E.g ‘ X’ asked a car dealer to suggest him a car suitable for touring purposes. The dealer suggested a BMW . Accordingly , ‘X’ purchased it but found it unsuitable for touring purpose. In this case , suitability of car for touring purpose was a condition of contract. ‘X’ was therefore entitled to reject the car and have refund the price paid

WARRANTY12 (2) :

• A warranty is a stipulation which is collateral to the main purpose of the contract. It is not of such vital importance as a condition is. Obligation which it must be performed, is not so vital that a failure to perform it goes to the substance of the contract. If there is a breach of warranty the aggrieved party can claim only damages and it has no right to treat the contract as repudiated

• E.g ‘x’ asked a car dealer to suggest him a good car and while suggesting the car, the dealer said that it could run for 20 km/of petrol . But the car could run only 15 km/of petrol. In this case, the statement made by the seller was a warranty. ‘X’ was therefore not entitled to reject the car but he was entitled to claim the damages

Condition warranty

• It is a stipulation which is essential to the main purpose of the contract

• The aggrieved party can terminate the contract

• A breach of condition can be treated as a breach of warranty

• It is a stipulation which is only collateral to the main purpose of the contract

• The aggrieved party can claim damages but cannot terminate contract

• A breach of warranty cannot be treated as a breach of condition

When condition to be treated as warranty ( sec 13 )

• In the following 3 cases , a breach of condition is treated as a breach of warranty :

• a. once the buyer waives a condition, he cannot insist on it’s fulfillment

• b. where the buyer elects to treat breach of the C as a breach of W

• c. where the contract is not severable and the buyer has accepted the goods or

part thereof

EXPRESSED & IMPLIED CONDITIONS AND WARRANTIES :

• In a COS of goods , C and W may be expressed or implied :

• Expressed C & W are those which are expressly provided in the contract e.g a buyer desires to buy a SONY TV model no-22. Here the model number is an express condition. In an advertisement of khatian fans, guarantee for 5 years is an express warranty

• Implied C & W- these are implied by law in every contract of sale of goods.

IMPLIED WARRANTIES

• Warranty of quiet possession : the buyer shall have & enjoy quiet possession of the goods. If the buyer is any disturbed in consequence of seller’s defective title of goods, he can claim damages from the seller

• Warranty of freedom from encumbrances : the goods are not subject to any charge or right in favour of a third party. The breach of warranty gives buyer a right to claim damages from the seller

• Warranty to disclose dangerous nature of goods : the seller knows that the goods are inherently dangerous , he must warn the buyer of the probable danger, otherwise he will be liable for damages

IMPLIED CONDITIONS :

• 1.Condition as to title : there is an implied condition on the part of the seller that in the case of a sale ,he has a right to sell the goods and in the case of an agreement to sell , he will have a right to sell the goods at the time when the property is to pass

• 2.Sale by description : there is an implied condition that the goods shall correspond with description. If the description of the article tendered is different in any respect, it is not the article bargained for and the other party is not bound to take it. E.g if you contract to sell peas, you cannot oblige a party to take beans - sale of goods by description may include the following situations :

a. where the buyer has not seen the goods and relies on their description given by the seller ( the buyer could obtain refund of price)

b. where the buyer has seen the goods but he relies not on what he has seen but what was stated to him and the deviation of the goods from the description is not apparent

• E.g a car was advertised for sale as a ‘ Herald convertible 1961 model’. The buyer saw the car before buying it. After buying the car, he discovered that while the rear part of the car was part of a 1961 model , the front half was part of an earlier model . Held he could return the car.

• c. Details of packing sometimes become part & parcel of the description• d. Sale by sample & description : the bulk supplied by the seller must be in

conformity or tally with the sample.

• 3. condition as to quality or fitness : normally in a COS there is no implied condition as to quality or fitness of the goods for a particular purpose. The buyer must examine the goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable for the purpose for which he is buying them .This is expressed by the maxim as caveat emptor ( let the buyer beaware principle )

• Exception to caveat emptor rule : there is an implied condition that the goods shall be reasonably fit for a particular purpose ,if the following 3 conditions are satisfied * where the seller makes it known to the buyer that the goods are of superior quality and it would meet certain purpose * sometimes the buyer relies on the judgement of the seller to select the goods on his behalf

* if as seller induces a buyer to purchase goods of a particular trade mark and the buyer finds the goods to be defective & not serving the purpose , he could reject the goods and recover the price from the seller from misleading the buyer as to quality

• 4. Condition as to merchantability : there is an implied condition that the goods should be commercially saleable. The term merchantable quality means goods of any kind fit fo rthe purpose or purpose for which goods o fthat kind are commonly bought

• E.g a watch that will not keep time, a pen that will not write, and tobaccoo that will not smoke cannot be regarded as merchantability of quality. Even if the defect can be easily cured/rectified the buyer can avoid the contract.

• 5. condition implied by custom : products that are meant for use for specific purposes in accordance with custom, practice by individuals should not cause injury or sufferance to the user e.g use of bindhi should not cause skin disease

• 6. Sale by sample : there is an implied condition that the bulk shall correspond with the sample in quality, the buyer shall have reasonable opportunity of comparing the bulk with the sample, that the goods supplied should be free from all defects whether latent or patent. When the defects are invisible to the normal eye and when they are incapable of reasonable examination, then in such cases the seller will be liable for breach of condition by sample

• 7.Condition as to wholesomeness : condition as to wholesomeness means that the goods shall be fit for human consumption. Incase of eatables and provisions , in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesomeness

• E.g ‘C’ bought a bun containing a stone which broke one of ‘C’s teeth. Held, he could recover damages