Contingent contracts in Indian Contract Act, 1872

Introduction

• This concept is defined in the Indian Contract Act, 1872 under chapter III titled contingent contract.
• Section 31 of the act in particular prescribes the definition as, a contingent contract is a contract to do or not do something depending upon happening or not happening of a collateral event.
• The term ‘contingent’ itself translates to subject to chance or dependent upon certain circumstances therefore these contracts are also termed as conditional contracts.
• For instance if A enters into a contract with B that he will pay him a sum of Rs. 50,000 if B’s house burns down then , this contract will be termed as a contingent contract as it is contingent ( depends on ) upon the burning of B’s house .

Essentials of a contingent contract

There are certain essentials that constitute a contingent contract such as:

• Conditional contract – The contract is based upon the happening or not happening of an event in other words the enforceability of the contract is directly tied to the event happening or not happening. A contingent contract cannot be enforced until the specified event occurs or does not occur.

Illustration: A agrees to pay B ₹5,000 if it rains on a particular day. If it does not rain, A’s obligation to pay does not arise thereby the matter of raining or not raining on the specific day is crucial to determine the enforceability of the contract between A and B.

• Future uncertain event – The condition for which the contract has been entered into must be a future event, and it should be uncertain. If the performance of the contract is dependent on an event, which is although a future event, but certain and sure to happen, then it’ll not be considered as a contingent contract.

Illustration: A agrees to sell goods to B if B’s shipment arrives by a certain date. The arrival of the shipment is uncertain at the time of the contract and directed towards the future as well at the same time.

• Event not at discretion of the promisor – The event that the contract is dependent upon should not be in control of the promisor to determine its certainty and thereby induce a specific output as it would hold the above point of uncertainty irrelevant.
• Collateral event – A contingent contract has a component termed as a collateral event , which is independent of the main agreement between the promisor and promise rather the obligation of the promisor to do or not do something is dependent upon this collateral event which is incidental in nature.

Illustration: X enters into a contract with Y and promises to deliver 10 books to him. Y promises to pay Rs. 2,000 upon delivery. This is not a contingent contract since Y’s obligation depends on the event which is a part of the contract (delivery of 10 Books) and not a collateral event which exists separately.

Legal framework for enforcement of contingent contract

The Indian Contract Act lays down certain provisions regarding the enforceability of contingent contract, these are mentioned in the following sections:

1. Enforcement dependent on the contingency of an event happening –

• Section 32 provides Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void.
• For instance A makes a contract with B to buy B’s horse if A survives C. This contract cannot be enforced by law unless and until C dies in A’s lifetime.
• In the case of Durgaprasad v. Baldeo[1], The contract included a clause that stipulated the sale would be contingent upon Durgaprasad obtaining a loan from a bank within a specified period. Durgaprasad applied for the loan, but the bank did not sanction it within the specified time. As a result, Durgaprasad could not fulfill the condition, and Baldeo refused to proceed with the sale. The Allahabad High Court held that the contract was a contingent contract under Section 32 of the Indian Contract Act, 1872, and since the specified event (obtaining the loan) did not occur, the contract become void.

2. Enforcement dependent upon contingency of an event not happening –

• Section 33 provides that Contracts contingent on the non-happening of an event can be enforced when the event becomes impossible or it is certain that the event will not happen.
• For instance 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 the case of Pannalal Jankidas v. Mohanlal[2], Pannalal Jankidas entered into a contract with Mohanlal for the purchase of certain goods that were to be shipped from Bombay to Karachi. The contract was contingent upon the goods being shipped within a specified period. Before the goods could be shipped, the outbreak of World War II made it impossible to ship goods to Karachi due to enemy action. The Supreme Court held that since the event upon which the contract was contingent (the shipping of goods) had become impossible due to the war, the contract was void under Section 33 of the Indian Contract Act.

3. Enforcement depends upon the future conduct of a living person –

• Section 34 says that if the contract is contingent on an event happening by the act of a living person, it becomes void if the event becomes impossible.
• For instance 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.
• In the case of Ramchandra v. Hiralal[3], Ramchandra and Hiralal entered into a contract under which Ramchandra agreed to sell a piece of land to Hiralal, contingent upon the land not being acquired by the government for public purposes within a specified period. The Nagpur High Court held that since the contingent event (non-acquisition by the government) did not happen, the contract become void under Section 34 of the Indian Contract Act. The Court explained that a contingent contract to do or not to do anything if an uncertain future event does not happen can be enforced only when the happening of that event becomes impossible. In this case, the event (government acquisition) did happen, making the contingent contract void.

4. Enforcement dependent on events within specific time –

• Section 35 , part 1 states that  a contract dependent upon a specified uncertain event to happen within a fixed time becomes void if, at the expiration of the time fixed and such event has not happened, or if, before the time fixed, such event becomes impossible .
• For instance 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 if the ship is burnt within the year.
• The second part of this section states that a contract based on a specified uncertain event that 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.
• For instance, in the same situation as above, A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.
• In the case of N.P.C. Supply Co. v. United Bank of India[4], N.P.C. Supply Co. entered into a contract with United Bank of India to supply a certain quantity of goods. The contract stipulated that the goods were to be delivered within a fixed time frame. If the delivery was not made within this time frame, the contract would be void. The supplier failed to deliver the goods within the stipulated time. The Calcutta High Court held that the contract was contingent upon the delivery of goods within the stipulated time frame. As per Section 35 of the Indian Contract Act, when a contract is contingent on an event happening within a fixed time, and that event does not happen within the fixed time, the contract becomes void.

5. Enforcement dependent on impossible events –

• Section 36 provides that If a contract is contingent on the happening of an impossible event, it is void whether the parties know the event is impossible or not.
• For instance A agrees to pay B 1,000 rupees if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.
• In the case of Kandasamy v. Kuppu Swami[5], Kandasamy entered into a contract with Kuppu Swami for the purchase of a piece of land. The contract stipulated that the sale would be finalized if a certain lawsuit involving the land was not resolved within a specific period of six months. The lawsuit, however, was resolved within the six-month period. The Madras High Court held that the contract was contingent upon the non-occurrence of the lawsuit resolution within the specified period. As per Section 36 of the Indian Contract Act, when a contract is contingent on an event not happening within a fixed time, and the event does happen within the fixed time, the contract becomes void. Since the lawsuit was resolved within the six-month period, the contingent condition was not met, and thus the contract was void.

Difference between Contingent Contract and Absolute Contract

Difference between Contingent Contract and Wager Agreement

Conclusion

In conclusion, contingent contracts under the Indian Contract Act, 1872 are agreements where the performance or enforceability depends on the occurrence or non-occurrence of a future uncertain event.  The provisions of the act underline certain specific enforcement conditions wherein the contract is held void , precisely when contract is dependent on the contingency of an event happening and it becomes impossible , contract is dependent upon the future conduct of a living person in context of an event and the event becomes impossible , the contract itself is based on an impossible event and lastly when the contract is based on happening of an event within specific duration and that time lapses.

[1] AIR 1954 All 225.

[2] AIR 1951 SC 144.

[3] AIR 1922 Nag 80.

[4] AIR 1994 Cal 53.

[5] AIR 1920 Mad 534.