INTRODUCTION
Contingent Contracts are very essential part of our lives, we enter into them without any choice because of how essential they have become in today’s life. One of the finest and most common example of contingent contracts is Insurances and Indemnity, which almost at least once in our lifetime is entered by every individual.
CONDITIONAL PROMISES AND UNCONDITIONAL PROMISES
A promise can be defined as a written or oral declaration given in exchange for something valuable that binds the maker to do or forbear from, a certain specific act and gives to the person to whom the declaration is made, the right to accept and enforce performance or forbearance. The person making declaration is the Promisor and the person to whom the declaration is made is called the Promisee. In contracts, promise is essential to make a legal agreement binding and is given in exchange of a consideration.
A promise is said to be absolute or unconditional when the promisor binds himself to performance in any event, and conditional when performance is due only on the happening of some uncertain event in the future, or if some state of facts not within the promisor’s knowledge now exists.[i] Here we can conclude, that absolute or unconditional promise is performed irrespective of the event whereas, the operation of conditional promise is limited only to occurrence or non occurrence of some uncertain event which already has been decided.
Some learned authors, have regarded conditional promises to be promises that are considered to be performed only after a lapse of time, this proposition however seems to be faulty because lapse of time cannot be regarded as being uncertain or contingent. Also, some of them deny the uncertainty of unknown present fact, this too is not correct.
Examples of unconditional promise-
- A promises to give ₹20 to B in return of a chocolate.
- X promises to give his land in return of money to Y.
Examples of conditional promise-
- A promises to give money to B, if the ship ‘RT-800’ doesn’t returns.
- X promises to give money Y, if Y marries Z.
RELATED SECTIONS IN INDIAN CONTRACT ACT, 1872.
Chapter III which includes Sec. 31, 32, 33, 34, 35 and 36 of Indian Contract Act, 1972 (hereinafter referred to as ICA) is completely dedicated to Contingent Contracts.
Sec. 31 of ICA, 1872 defines contingent contract:
A “contingent contract” is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.[ii]
For example. A makes a contract to pay B ₹10,000 if B’s house is burnt.
It is only when the condition is of uncertain nature the contract is regard as contingent or conditional. Contingent contracts became enforceable in India back in 1979 by the case CWT v. Her Highness Vijayaba[iii], in this case it was held that the contact is enforceable by the means of Sec. 32 of ICA i.e. contingent contract; which made the mother liable to pay the debt owned by her elder son.
All the contracts of insurance and indemnity are contingent contracts in both India and England where it is termed as “conditional contract”. The agreement of wager is also contingent but it is void because of Sec. 30 of ICA.
One essential of contingent contract is that contingency is collateral to contract, this means that the contract exists already, it is just that its performance cannot be demanded unless the event which is contemplated happens or does not happens. It is distinguished from a proposal which does not results into a contract unless and until the condition is first fulfilled. For e.g. an offer to pay a sum of money on the discovery of a missing child is just an offer not a contract; it will be a contract only when a person gets to know the offer and starts acting to find the child. On the other hand, payment of money on the loss of a ship is a contract which is contingent in nature because it depends on the condition that the ship must get lost but the performance can only be demanded once the ship gets lost. Similarly, a contract to sell a disputed land to the other party in dispute becomes operative only when the decision is in the seller party’s favor, is a contingent contract. A contingent contract fails due to non-happening of an anticipated event.
The second essential is that contingency depends upon will of a person. A contract will be no less contingent where the happening or non-happening of the contingency depends upon the will of a party.[iv] A contract with regard to the marriage of promisee is a contingent contract. In the case of the Secretary of State of India v A.J. Arathoon[v] involved supply of timber to government department, the timber was first to be approved by the superintendent of factory, which he didn’t approved. As a result of which supplier sued government stating that the timber supplied matched the quality asked for therefore it should have been approved; the Madras High Court held the contract as contingent to the approval opposite to the decision given by trial court which held superintendent as arbitrary. Nevertheless, the Madras High Court concluded that since contingency wasn’t fulfilled there was no question of breach of contract. However, if goods have already been supplied and the contract says that the buyer can pay whenever he is in a position to do so; this contract isn’t Contingent because the goods have been supplied and therefore a duty to pay has been raised it’s just that concessions are given to pay within a reasonable time.
The third essential is that contingency should be condition precedent. Generally, the condition should be satisfied first and then the performance can be demanded, for instance, the condition to first appoint a person as a clerk in the company then only he will purchase the shares of that company, here the appointment is a condition to contract for purchasing shares. However, sometimes there are conditions which are to be fulfilled after the contract has been formed, in such case it isn’t a contingent contract because the contract already exists, for instance, “where the application of shares was subject to the condition that the applicant would pay nothing until the company paid dividends”[vi]. Therefore, the both shouldn’t be considered as being same.
Furthermore, if a valid contract is liable to be defeated on the occurrence of some subsequent condition, it isn’t regarded as a contingent contract, for instance, a piece of land is sold on the condition of repurchase on happening of a certain event is not a contingent contract. The Supreme Court has laid down that a contract, stipulating that on the day of redemption of the mortgaged house by the plaintiff, the defendant would execute a sale deed of the house in the favor of the plaintiff, is a typical illustration of a contingent contract within the meaning of Section 31.[vii]
Sec 32 of Indian Contract Act is regarding the enforceability of contingent contracts where enforcement depends upon happening of an event:
“Contingent contracts to do or not to do anything if an uncertain event happens, cannot be enforced by law unless and until that event has happened.
If the event becomes impossible, such contracts become void.”[viii]
For example. X contracts to pay Y ₹10,000 if he marries Z. Z died without being married to Y, as a result contract becomes void.
This section lays down two basic principles:
- a contract to do an act on the happening of a future uncertain condition is enforceable only after the occurrence of that event.
- if happening of that event becomes impossible the contract becomes void, as already illustrated.
An option to buy shares of a bank if and when the bank is converted into a financial corporation is a contingent contract of this kind, namely, which is to be performed on the happening of a future uncertain event.[ix] Moreover, a contract would also not happen if the given event happens in a contemplated way; for e.g. where a car was insured against loss in transit, the car was damaged without being put in the course of transit, the insurer was held not to be liable.[x] Also, the contingent contract ripens to an absolute contract once the event happens.
Sec 33 is on enforceability of contingent contracts when performance depends upon non-happening of an event:
“Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before.”[xi]
For e.g. X agrees to pay Y ₹50,000 if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
In this case the parties have to wait till the happening or occurrence of that event becomes impossible, like, only when the ship sunk was the contract between X and Y enforceable.
Sec 34 of Indian Contract Act states:
“If the future event on which a contract is contingent is the way in which 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.”[xii]
For e.g. 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.
In Frost v. Knight,[xiii] the defendant promised to marry the plaintiff on the death of his father. Father still being alive he married another woman. It was held that it became impossible to marry plaintiff and therefore she can sue him for breach of contract. In Pym v. Campbell[xiv] there was a written agreement that the defendant would buy plaintiff’s inventions benefit if it was approved by the engineer. The engineer didn’t approve. It was held that there was no contract since the engineer didn’t approve of it.
Sec 35 of Indian Contract Act, states:
“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 becomes impossible.”[xv]
Contracts which are contingent on specified event not happening within the fixed time, may be enforced by law only when the time fixed has expired and such event hasn’t occurred or before the expiration of time fixed, it becomes certain that such event cannot occur.
For e.g. X promises to pay Z ₹70,000 if a certain ship returns within 6 months. The contract may be enforced if the ship returns within the 6 months and becomes void if it gets burned within those 6 months.
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.[xvi]
Sec 36 of Indian Contract Act states:
“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.”[xvii]
This section talks about the validity of contingent contract in case the event is impossible from the very beginning. For e.g. A agrees to pay X a sum of money, if X marries B, when the agreement was made B was dead; this agreement is void.
REFERENCES
- Abichandani, R. (1994). Pollock & Mulla on Indian Contract and Specific Relief Acts (11 ed., Vol. I). Bombay, Maharashtra , India: N.M. Tripathi Private Ltd.
- Singh, A. (2019). Contract and Specific Relief (12th ed.). Lucknow: Eastern Book Company.
[i] R.K. Abichandani, Pollock & Mulla Indian Contract and Specific Relief Acts, vol 1 (12th edn, Tripathi 1994) 489
[ii] Indian Contract Act 1875
[iii] CWT v Her Highness Vijayaba AIR 1979 SC 982
[iv] Avtar Singh, Contract & Specific Relief (12th edn, EBC 2019) 353
[v] The Secretary for State of India v A.J. Arathoon (1882) ILR 5 Mad 173
[vi] Avtar Singh, Contract & Specific Relief (12th edn, EBC 2019) 354
[vii] Ramzan v Hussaini AIR 1990 SC 529
[viii] Indian Contract Act 1975
[ix] Avtar Singh, Contract & Specific Relief (12th edn, EBC 2019) 355-56
[x] V.P. Desa v Union of India AIR 1958 MP 297
[xi] Indian Contract Act 1872
[xii] id
[xiii] Frost v Knight 1872 LR 7 Exch 111
[xiv] Pym v Campbell (1856) 6 El&Bl 370: 119 ER 903
[xv] Indian Contract Act 1872
[xvi] Indian Contract Act 1872
[xvii] Indian Contract Act 1872
This article written by Smera Sarnath Sonker, 1st year student of Dr. Ram Manohar Lohiya National Law University, Lucknow.
