CONTINGENT CONTRACT

[Mr. M. GOVINDARAJAN]

Chapter III of the Indian Contract Act, 1872 deals with the contingent contract.  The following sections deals with various aspects of contingent contract-

• Section 31 – Definition of ‘contingent contract’;
• Section 32 -  Enforcement of contract contingent on an event happening;
• Section 33 – Enforcement of contract contingent on an event not happening;
• Section 34 – When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person;
• Section 35 – When contracts becomes void, which are contingent on happening of specified event within fixed time;
• Section 36 – Agreements contingents on impossible event void.

Contingent Contract

Section 31 defines the term ‘contingent contract’ as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Every contract constitutes a relation between the parties to it and rights arising out of that relation, but it does not follow that every contract creates a right immediately enforceable.   The right created may be one which the parties agree shall be enforceable only on the happening of some future event, as to which neither of the parties makes any promise and which is, therefore, collateral to the contract, its import being merely to mark the moment at which a right created by the contract becomes enforceable.  Such contracts are terms ‘contingent’.

The following are the essential features of contingent contract-

• Uncertainty and futurity of the event to which it is related – It is this dependence on a future even which distinguishes a contingent contract from other contract.  An insurance contract is an example for this type of contract;
• Uncertain future event must be collateral to the contract.

The following may not be the contingent contract:

• An agreement to sell unspecified half share in the property;
• An agreement to sell a house;
• An agreement to purchase a property;
• Reciprocal promises;

The contingency which is the essence of a condition must be distinguished from mere futurity.  An obligation is not to be classed as conditional because its performance is not yet due.  The passage of time is a certainty and not a contingency.

A contingency contract need not necessarily be dependent on any external event.   It may be conditional on the voluntary act or the future conduct of one of the parties or a third person.

Enforcement of contingent contract on an event happening

Section 32 of the Act provides that contingent contracts to do 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 become void.

The following are the illustrations

• A makes a contract with B to buy B’s horse if A survives C.   This contract cannot be enforced in law unless and until C dies in A’s life time;
• A makes a contract with B to sell a horse to B at a specified price if C, to whom the horse has been offered, refuses to buy.  The contract cannot be enforced by law unless and until C refuses to buy the horse;
• A contract to pay B a sum of money when B marries C.  C dies without being married to B.   The contract becomes void.

Contingent contracts dependent on the happening of a certain event can be enforced only on the happening of that event.  A plea that a contract is a contingent has to be alleged and proved by the party who sets it up and it is futile to argue that it is the bounded duty of the Trial Court to go into the matter.

Enforcement of contracts contingent on an event not happening

Section 33 of the Act provides that contingent contracts to do or not to do anything if uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before.    If A agrees to pay B a sum of money, if a certain ship does not return.   The ship is sunk.   The contract can be enforced when the ship sinks.

In ‘Gian Chand V. Goapala’ – 1995 (1) TMI 386 - SUPREME COURT the declaration under Section 6 of Land Acquisition Act, was published and so it was conclusive of public purpose and the land was acquired.   The contract was, therefore, frustrated.  Since one of the terms of the contract is to return the earnest money, in the event of acquisition being made by the State, the Vendee-appellant is entitled under Section 33 of the Act, as rightly and legally held by the trial court to seek the refund of earnest money.   The contract in question being a contingent contract based on uncertain future events, that event having occurred by notification issued under Section 6 the contract became impossible of performance.   Therefore it got frustrated and the contracting party is entitled to enforce the terms of the contract for refund of earnest money.

No liability can arise on a promise subject to a condition precedent until the condition is performed and if by lapse of time or for any other reason the condition cannot be performed, no liability can ever arise upon the promise.   In other words it will be discharged

When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person

Section 34 of the Act provides that if the future event on which a contract is contingent is the way a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.

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

The application of this section must obviously depend upon the construction of the contract.  In the matter of Jaunpur Sugar Factory – 1925 (5) TMI 1 - ALLAHABAD HIGH COURT one R had agreed to take shares in the Jaunpur Sugar company if the company would appoint him its sole agent as at a certain place.   The company went into liquidation before appointing him as agent and R was entered on the list of contributories.   It was held that R was not liable, as the contract to take shares was contingent on his appointment as agent which event never took place.

When contracts become void, which are contingent on happening of specified event within fixed time

Section 35 provides that contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event has not happened, or if before the time fixed, such event becomes impossible.

Contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time, may be enforced by law when the time fixed has expired and such event has not happened, or before the time fixed has expired, if it becomes certain that such event will not happen.

The illustration for the above is as follows:

• A promises to pay B a sum of money if a certain ship returns within an year.   The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt with the year.
• A promises to pay B a sum of money if a certain ship does not return within an year.   The contract may be enforced if the ship does not return within the year, or is burnt within the year.

In ‘Panem Venkanarayana Sastry V. Rajupalli Chinna Yellw Reddy’ 1958 (11) TMI 29 - ANDHRA PRADESH HIGH COURT the defendant agreed to sell the suit properties to the plaintiff.   The agreement was subject to the title of the defendant being approved by the plaintiff’s family lawyer.  There was no time fixed within which the plaintiff should obtain the approval of his lawyer.  It was held that the intention was that the approval should be obtained within a reasonable time.  The time that elapsed between the agreement and the approval of the lawyer was about ten days.   In these circumstances there has been no unreasonable delay.

Agreements contingent on impossible event void

Section 36 provides that 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 the agreement at the time when it is made.

The following are the illustrations for the purpose of Section 36:

• A agrees to pay B ₹ 1,000/- if two straight lines should enclose a space.  The agreement is void;
• A agrees to pay B ₹ 1,000/- if B will marry A’s daughter C.  C was dead at the time of agreement; the agreement is void.