Contingent Contracts

Posted on 08-11-2019

Contingent Contracts Contingent contracts are contracts that are dependent on the happening or non-happening of an uncertain event. This paper analyses the concept of such contracts. it discusses the nature of a contingent contract and its essentials. It also distinguishes such a contract from agreements subject to contract, wagers and agreements to do impossible acts. The paper also studies the situations when a contingent contract can be enforced and the circumstances when such a contract becomes void.” Introduction A contract is an agreement enforceable by law. [Section 2(h) of The Indian Contract Act, 1872]. For every contract, there should be an agreement that is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object. The agreement should not be declared void hereby to form a contract. This definition of contracts as per Indian Contract Act, 1872 is based on Sir Pollock’s definition which states that every agreement and promise enforceable at law is a contract. Thus for the formation of a contract, there must be an agreement and something in addition to that, i.e., an agreement, and its enforceability at law. [i] The word contingent ordinarily means ‘subject to chance’. In the Indian Contract Act, 1872, this word has been used to mean conditional, just the way we use it generally. Uncertainty is the hall-mark of the future. Estimating the chances of an uncertainty becoming certain, calculating the results if the event doesn’t happen and then measuring the potentiality to deal with its consequences are all about contingent contracts. Parties may stipulate that performance of obligations under a contract is dependent on a contingency, even though the contract is validly formed. [ii] The parties agreeing to the conditions agree that the rights will be enforced and the obligations will be due on the happening of the contingency on the contracting of a valid contract. Section 31 to 36 of The Indian Contract Act, 1872 deal with this type of contract. Section 31 of the Act defines ‘contingent contract’ thus: 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. [iii] Conditions When A Contingent Contract Can Be Enforced There are some certain conditions on which an event can be fulfilled. These are some rules which have to be followed for a contingent contract to be enforceable. On The Happening Of An Event Section 32 of The Indian Contract Act, 1872 provides that contingent contracts to do or not to do anything of an uncertain future event happen cannot be enforced by law unless and until that event has happened. For instance, if X makes a contract with Y to buy Y’s horse if X survives Y. this contract cannot be enforced by law unless and until Y dies in X’s lifetime. In the case of Bashir Ahmed & others vs Government of Andhra Pradesh[xv], the respondent contracted to purchase a book of medical prescriptions in order to start a company for the manufacture and sale of Unani Medicines. The book was taken into possession after part payment but the purpose of taking the book couldn’t be fulfilled. The appellant filed a suit to recover the balance amount. The defence was that the contingent event of forming a company wasn’t yet fulfilled. The court rejected this contention and held that the contract was not contingent on the event of the formation of the medical company. This case law is a good example as to differentiating the event and making a contract enforceable only after the occurrence of the event. The enforcement of the contract is envisaged when, primarily, the contract is contingent on the happening of an event. If it is not contingent on an event, it is not enforceable.[xvi] Therefore, for any contingent contract to be contingent, the event has to occur before fulfillment of the conditions of the performance of the contract. On The Event Not Happening Section 33 of The Indian Contract Act, 1872 clearly states that : “ Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be enforced when the happening of the event becomes impossible, and not before.” If a person promises to pay another a sum of money if a ship does not return back, he will be obliged to pay only and only after the possibility of the ship returning becomes impossible. In this illustration, if the ship sinks, the possibility of it returning becomes nil. Thus, the contract has to be enforced. The person has to pay money and he cannot wait with the hope of the ship returning. In the case of Frost vs Knight, [xvii] the defendant promised to marry the plaintiff on the death of her father. While the father was still alive, he married another woman and thus, it was held that there was no chance left that the defendant would marry the plaintiff. Thus, she was entitled to sue him. As soon as the man married another woman, it was sure that the event of the marriage of the plaintiff and the defendant would not occur. Thus, the plaintiff had the right to sue him. On The Event Not Happening Within A Specified Time Section 35 of the Act states that: 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, and such event has not happened, or, before the time has expired, if it becomes certain that such event will not happen. [xviii] If X promises Y 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. Situations When A Contingent Becomes Void The Event Being Impossible If X contracts to pay Y if Y marries Z and Z dies without being married to Y, the contract becomes void. A contingent contract will become void if the future uncertain event becomes impossible to occur. Section 32 of the act states that: “If the event becomes impossible, such contracts become void.” The Doctrine of Frustration or impossibility of performance can be discussed here but in India, principles and theories related to it are not applicable. [xix] In the case of Satyabrata vs Mugneeram,[xx] an integral part of a development scheme of an extensive area of land was started by the defendant company. It entered into a contract with the plaintiff’s predecessor for the sale of a plot of land to the latter accepting a small sum of money as earnest. It undertook to construct roads and drains and the conveyance was to be completed soon after the completion of tile roads on payment of the balance of the price. As a considerable portion of the area comprised in the scheme was requisitioned by the Government for military Purposes in 1941, the company wrote to the defendant that the road construction could not be taken up for an indefinite period and required him to treat the agreement as cancelled and receive back his earnest. It was held that having regard to the nature and terms of the contract, the actual existence of war condition at the time when it was entered into the extent of the work involved in the scheme fixing no time limit in the agreement for the construction of the roads etc., and the fact that the order of requisition was in its very nature of a temporary character, the requisition did not affect the fundamental basis of the contract nor did the performance of the contract become illegal by reason of the requisition, and the contract had not therefore become impossible. Non-Happening Of Event Within Fixed Time Section 35 of The Indian Contract Act, 1872 states that: Contingent contracts to do or not to do anything is a specified uncertain event happens within a fixed time becomes void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible. If a man promises to pay another man some money if a ship does not return within a year, the contract becomes void if the ship is burnt or sinks within that year. Agreements Contingent On Impossible Events Section 36 of the act clearly states 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 to the parties to the agreement at the time when it is made. If X agrees to pay Y 1000 rupees if Y will marry X’s daughter but at the time of the agreement, the daughter was dead. Thus, this contract is void. Conduct Of A Living Person[xxi] Section 34 of The Indian Contract Act states that: “When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.” If the future event on which 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.[xxii] If X agrees to pay Y a sum of money if Y marries Z. Z marries K. the marriage of Y to Z is considered to be impossible although it may be possible that K may die later, making the marriage of Y to Z possible. If the event is the future conduct of a person living, the event is deemed impossible if that person does anything which makes which makes it impossible. The impossibility is only for the time-being and the prospect of the event becoming possible due to the future conduct of that person in certain future contingencies, is of no avail. Thus, these are the conditions when a contingent contract can become void and it cannot be enforced. Conclusion A contract is an agreement enforceable by law. For every contract, there should be an agreement which is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object. The agreement should not be declared void hereby to form a contract. Every contingent contract is a contract primarily. Like any other contract, it is also a contract to do or not to do something. It is not, however, an absolute and unconditional one, without any reservations or conditions, which is to be performed under any event. Its performance is dependent on some event’s happening or not happening- the contingency. For a contract to be a contingent contract, certain essential elements have to be there. These elements form a contingent contract and without them, a contract will not be contingent. There must be a valid contract to do or not to do something. The performance of the contract must be conditional. The said event must be collateral to such contracts and the event should not be at the discretion of the promisor. These are some rules that have to be followed for a contingent contract to be enforceable. For instance, on the happening of an event, on the event not happening and on the event not happening within a specified time. There are some situations when a contingent contract becomes void. Some of them are: the event being impossible, not happening of event within fixed time, agreements contingent on impossible events and on the conduct of a living person.