True or false: collateral transactions; mere silence; quasi contracts

(i)False An agreement is illegal when the law forbids it, and the courts refuse to enforce not only the agreement but anything connected with it; every illegal agreement is void, though a void agreement need not be illegal. So a transaction collateral to an illegal agreement shares its taint and is not valid: ICAI notes, for instance, that lotteries are illegal, so transactions collateral to them are tainted with illegality too. In the same way, a loan knowingly made to fund a smuggling deal cannot be recovered. (It is transactions collateral to a merely void agreement that may stand.)

(ii) True, subject to exceptions. As a rule, keeping quiet about facts that might affect the other side's decision is not fraud: a seller need not volunteer every weakness of what he sells. The Explanation to section 17 of the Indian Contract Act, 1872 makes two exceptions: silence is fraud where the circumstances put the silent party under a duty to speak, or where the silence itself amounts to saying something. A person applying for health insurance who says nothing about a heart condition he knows of has a duty to disclose it, and his silence can be fraud.

(iii)True Take a shopkeeper to whom a customer pays ₹500 twice by mistake. He never promised to return anything, yet he must hand back the second payment (s. 72). There is no offer, no acceptance and no agreement here: the duty is put on him by law, because keeping money that is not his would be unjust. Obligations of this kind are called quasi contracts only because the outcome is the same as if a contract had existed. Since they arise from law and not from the parties' consent, they are not contracts in the real sense, which is what the statement says.