Contingent and Conditional Contracts
Complete Explanation of Contingent Contract
Section 33 34 35 of Contract Act 1872
1. Introduction:
Every contact 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 party 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. These contracts are called contingent. Section 31-36 of the Contract Act deal with these kinds of contracts.
2. Definition of Contingent Contract:
Section 31 posits that a contingent contracts is a contract to do or not to do something, if some event collateral to such contract (i.e. not covered by the reciprocal promises in the contract), does or does not happen In such a contract the liability to perform shall only arise or shall cease on the happening of some future event which may or may not happen. It may also arise on one of the parties doing or abstaining from doing some act. Where the liability does arise on the happening of the contingency or the performance of the condition, the condition is termed a condition precedent. The event upon which the contingency arises may be within the power of either party or both or none. It may even be contingent on the voluntary act of the promisor. It cannot, however, rest on the mere will of the promisor.
3. Conditional and Contingent Contracts:
Section 31 has introduced a term called ‘contingent contracts’. In English law there is no such term. Only a ‘conditional contract’ is envisaged these. So is it in America. In England, the connotation of the word ‘conditional contract’ and of the confusing parallel word warranty was for long not clear. The lawyers familiar with Roman jurisprudence ‘condition’ was sharply to be distinguished from the actual terms of a contract. In the words of Cheshire and Fifoot: condition “is taken to mean, not part of the obligation itself but an external fact upon which the existence of the obligation depends.” An obligation or right which is suspended by the terms of the contract until the happening of a stated event is in common law a ‘condition precedent’. Conditions may be either precedent, subsequent or inherent. A condition is precedent when, unless it is complied with, the estate does not arise. It is subsequent, when if it is broken, the estate is defeated. It IS inherent when the estate is qualified, restrained or changed by it.
4. Essentials of a Contingent Contracts:
A contingent contract’ which is analogous to the English concept of conditional contract arises on the following factors:
(a) There must be a contract to do or not to do something; (b) on the happening or not happening of a certain event. (c) That event must arise outside the essential elements of the contract i. a, collateral to such contract.
5. Rules relating to the Performance of Contingent Contracts: Section 3236, Contract Act enact the following rules in the regard:
(1) Rule of Section 32:
Where there is a contingent contract to do or not to do anything if an uncertain future event happens, it does not become a binding contract unless and until the uncertain future event has happened. Therefore, it can be enforced only on the happening of such event. Thus, if there is a valid ante-nuptial agreement, made in consideration of there being marriage, on the marriage taking place that promise becomes a binding contract. So also, where a co-sharer, in an undivided land, contracts to sell a certain area out of his share adjoining to that of the purchase, the contract is dependent on a contingency, that is, allocation to him by partition of that area Such a contract is a contingent contract within the provisions of this section and does not become binding until the contemplated partition is made and the land falls to his share.
Illustrations:
(a) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.
(b) 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 it. The contract cannot be enforced by law unless and until C refuses to buy the horse.
(c) In Bombay Burmah Trading Corporation, Ltd. v. Aga Mohamed Khaleel, the contract required that the teakwood sleepers must be reasonably fit for certain purposes and passed in the impartial and honest exercise of their judgment by two experts, but the experts did not decide that the sleepers were in conformity with the contract, it was held, that the requirements of the terms of the contract had not been fulfilled, and the passing relied on was not within the meaning of the contract. [LR 38 IA 169]
(d) In Narain v Aukhoy a certificated guardian of certain minors contracted to sell certain land belonging to the-minors contingent upon the leave of the Court. The Court sanctioned the sale, but at a higher price than that agreed on between the plaintiff and the guardian. It was held, that the contract as it stood never became a complete contract at any time as it was confinement upon the permission of the Court, and the permission of the Court did not extend to the contract as agreed upon between the parties. [ILR 12 C 152]
(2) Rule of Section 33:
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. While Section 32 provides for enforcement of contracts contingent on an event happening, this section lays down the rules for the enforcement of contracts contingent on an event not happening. With regard to contingent contracts to do, or not to do, anything, if an uncertain future event does not happen, this section provides that such contract can be enforced only when the happening of that event becomes impossible, and not before.
Illustrations:
(a) A agrees to pay B a sum of money, if a certain ship does not return. This ship is sunk. The contract can be enforced when the ship sinks.
(b) Another illustration may be Section 144 of the Contract Act which posits that where there is a guarantee upon a contract that the creditor shall act upon it only when another person has joined in the contract as co-surety, the guarantee can be enforceable only if the other person joins as a co-surety.
(c) In Sushil Chandra Das v. Sukhamal Bansidhar the plaintiff firm expressed, acceptance by two letters with reference to the two indents received Horn he defendant firm. Each letter began with the words “we have the pleasure to accept your indents” but added “the above mentioned acceptance is subject to revision and confirmation by mail if required. This only meant there was a mistake m a telegram according to the usual practice of HIP parties, the latter clause is applicable. So the ‘uncertain event’ was the discovery of some telegraphic error. The happening of that event became impossible when the mail confirmed the original terms as communicated by telegram, and the contract thereupon became enforceable. [AIR 1922 A11219]
(3) Rule of Section 34:
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 lime, or otherwise than under further contingencies. The section provides for cases, where the future event, on which a contract is contingent, is the way in which a person will at act an unspecified time. It enacts that, in such cases, 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.
Illustrations:
(a) 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.
(b) A agreed to take out shares in 3 company provided the company appointed him as the sole agent at a certain place. Before appointing him as the agent, the company went into liquidation. A was entered in the list of contributors and the liquidator demanded of him the share amount. It was held that the contract to take shares was contingent on the company appointing him as its agent.
(c) Section 124 of The Indian Succession Act reads:
"Where a legacy is given if a specified uncertain event shall happen and no time is specified in the will for the occurrence of that event, the legacy cannot take effect, unless such event happens before the period when the fund bequeathed is payable or distribute able".
Of the illustrations given in this section we may refer to illustrations (i) and (iii):
(i) A legacy is bequeathed to A and in case of his death to B. If A survives the testator his legacy to B does not take effect.
(ii) A legacy is bequeathed to A when and if A attains the age of 18, and in case of his death to B. A attains the age of 18. The legacy to B does not effect.
(4) Rule of Section 35:
Two rules, through interrelated, have been enacted in Section 35
(a) Rule i:
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. (Section 35(1))
Illustration:
A promises to pay B a sum of money (as loan) 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 or if the ship does not return within the year.
(b) Rule ii:
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 (Sec 35(2)). So when performance of a contract depends on the non-happening of an event within a specified time, its performance cannot be demanded if the event does not happen or its happening becomes impossible before the expiry of that time.
Illustration:
A promises to pay B a sum of money (as insurance claim) 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.
(5) Rule of Section 36:
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. (Sec. 36). This section provides for contingent agreement to do or not to do anything, if an impossible event happens. It lays down that such agreements 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.
Illustration:
(a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void.
(b) 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.
6. Contingent Contracts Distinguished from Reciprocal Promises:
Reciprocal promises are to be distinguished from contingent former cannot be said to be collateral to each other. There are three kinds of covenants:
(a) Mutual and independent:
Where each party relics on the promise of the other, and either is entitled to demand antecedent performance, or even to require that the other should be ready and willing ‘to perform his part;” in such covenants either party can recover from the other for the injury he may suffer by a breach of the covenant in his favor, and it is no excuse for the defendant to allege a breach of the covenant on the part of the plaintiff;
(2) mutual conditions to be performed simultaneously:
In this class of cases, which are dealt with by Section 51, each party has the security of concurrent performance on the other side; neither party is bound to perform his promise, unless the other is simultaneously ready and willing to perform his part of the agreement; in this class of covenants, if one party was ready and offered to perform his part, and the other neglected or refused to perform his, he who was ready and offered, has fulfilled his engagement, and he may maintain action for the default of the other, even though it is not certain who is bound to do the first act.
(3) conditional and dependent:
In which the performance of one depends upon the prior performance of another, and therefore, until this prior condition is performed, the other party is not liable to an action on his covenant; in this class of covenants one of the parties has the security of performance on the other side before he can be called upon to perform his promise.
Illustration:
Where X promises to pay Y a certain sum, if Y sells his property to him, the contract is not a contingent one, there being no clement of uncertainty due to the happening or non-happening of a future uncertain event over the happening or non-happening of which the parties have no control. Y has the option to sell or not to sell, there is no element of uncertainty due to the happening or non-happening of any event not within the control of the parties. If, however, the contract is, that if Y succeeds in a litigation concerning the property, he will sell it to A, there is a contingent contract. Mere, the happening of the event is not within the control of either of the parties.
7. Contingent Contracts Distinguished from Wagering Contracts:
The main points of distinction between the two are as under:
(i) A Contingent Contract IS a valid contract but a wagering agreement is absolutely void.
(ii) In a Contingent Contract the parties have real interest in the occurrence or nonoccurrence of the event but in a wagering contract the parties are not interested in the occurrence of the event except for the winning or losing the bet amount.
8. Condition and Warranty:
A condition is a contractual term, expressed or implied, whereby the operation of an undertaking contained in the contract is made dependent on the issue of some contingency. If the contract consists of more undertaking and obligations than on a condition may be imposed upon the whole of those undertakings and obligations or it may be limited to some one or more of them. In other words, a condition may make the contract wholly conditional or conditional in part only, the residue of the obligations of that contract being absolute so-far as that condition is concerned. An example of the former position is at contract for the sale of specific goods not at the time of the making of the contract, known to the “parties to have perished”: such a contract is conditional upon the goods being in existence when it was made. An example of the latter position is afforded by a contract for the sale and purchase of goods in installments, the obligation of the vendor to deliver any particular installment is (in the absence of a term to the contrary) conditional on the readiness and willingness of the purchaser to pay for that installment. Non-payment by the purchaser of the price of an installment which was nevertheless delivered to him would not (so far as this condition was concerned) entitle the vendor to Withhold delivery of a subsequent installment.
Relevant Questions and Searches:
Define Contingent Contract.
Explain the rules regarding the performance of contingent contract as provided in Contract Act.
Rules of Contingent Contract.
Difference between contingent contract and Reciprocal Promises.
How Contingent Contracts are Distinguished from Wagering Contracts?
Condition and Warranty
Contingent Contract is a valid contract? discuss Essentials of valid contract.