Definition and Essentials of Contingent Contracts (Section 31)
Meaning of Contingent Contract
The Indian Contract Act, 1872 distinguishes between absolute contracts and contingent contracts. While absolute contracts are promises where performance is immediate or not dependent on external events, contingent contracts are those where the obligation to perform arises or ceases upon the occurrence or non-occurrence of some uncertain future event.
Definition under Section 31
Section 31 of the Indian Contract Act, 1872 defines a "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."
This definition is central to understanding the nature of contingent contracts.
Dependent on the happening or non-happening of a future uncertain event
Breaking down the definition, a contingent contract has the following characteristics:
- Contract to do or not to do something: It is a promise, like any other contract.
- Conditional Performance: The performance of the promise is not absolute but is dependent upon a condition being met (or not met). The condition is the happening or non-happening of an event.
- Future Event: The event must be something that may or may not happen in the future.
- Uncertain Event: The happening or non-happening of the event must be uncertain. If the event is certain to happen (or not happen), it is not a contingent contract.
- Event Collateral to the Contract: The event upon which the contract is contingent must be 'collateral' to the contract. This means the event is not the performance itself, but something related to, yet distinct from, the mutual promises of the parties. It is an event outside the scope of the direct performance obligations under the contract. For example, in a contract of insurance, the payment of premium is a performance obligation, but the burning of the house is a contingent event.
In essence, a contingent contract is one where the rights and obligations of the parties are dependent on a future event whose outcome is not certain. The contract becomes binding and enforceable only upon the happening or non-happening of that specified event.
Example 1. Mr. Alok promises to pay Mr. Bhavesh Rs. 5,000/- if Mr. Bhavesh's house is burnt. Is this a contingent contract?
Answer:
Yes, this is a contingent contract. Mr. Alok's promise to pay Rs. 5,000/- is contingent upon the happening of a future uncertain event (Bhavesh's house being burnt). The event (fire) is collateral to the promise itself. This falls squarely within the definition of a contingent contract under Section 31. This is similar to a contract of fire insurance, where the insurer's promise to pay compensation is contingent upon the insured property being damaged by fire.
Example 2. Mr. Chetan promises to sell his car to Mr. Deepak for Rs. 3 Lakhs. They agree that Mr. Deepak will pay the money next week and Mr. Chetan will deliver the car upon payment. Is this a contingent contract?
Answer:
No, this is not a contingent contract. Mr. Chetan's promise to deliver the car is dependent on Mr. Deepak's payment, and Mr. Deepak's promise to pay is dependent on Mr. Chetan's readiness to deliver. These are reciprocal promises where performance is exchanged. The event upon which performance depends (payment and delivery) is not a collateral event but part of the mutual performance obligations under the contract itself. This is an absolute contract (specifically, one involving reciprocal promises), not a contingent one.
Essentials of Contingent Contract
Based on the definition in Section 31, the essential elements of a valid contingent contract can be identified:
The contract must be conditional
The performance of the contract must be dependent upon the happening or non-happening of some event. If the contract is not conditional, it is an absolute contract.
Example: A promises to pay B Rs. 10,000/- only if B gets a visa to travel to Canada. A's obligation to pay is conditional upon B getting the visa.
The event must be uncertain
The event upon which the contract is contingent must be an event that may or may not happen. If the event is certain to happen, it is not a contingent contract, but a certainty. While the timing might be uncertain, the event itself must be of uncertain occurrence.
Example: A promises to pay B Rs. 1,000/- when the sun rises tomorrow. This is not a contingent contract because the event (sunrise) is certain to happen. This is a certainty, and the payment is merely deferred until a certain event occurs. If A promises to pay B Rs. 1,000/- if it snows in Delhi tomorrow, that is a contingent contract because snowing in Delhi tomorrow is an uncertain event.
The event must be future
The event must be a future event. If the performance depends on an event that has already happened at the time of the contract (whether known to the parties or not), it is not a contingent contract.
Example: A promises to pay B Rs. 500/- if B's ship arrives from London. The ship had already arrived safely before the contract was made, unknown to the parties. This is not a contingent contract as the event was not future at the time of contracting. Its enforceability would depend on rules related to mistake (Section 20).
The event must be collateral to the contract
The event must be outside the main reciprocal promises of the contract. It should not be the performance of the contract itself.
Example: A promises to pay B upon delivery of goods. Delivery is an act of performance under the contract, not a collateral event. Not a contingent contract.
Example: A promises to pay B upon the safe return of B's ship. The safe return of the ship is collateral to the promise of payment. This is a contingent contract.
Example 1. Mr. Pawan promises to pay Mr. Qasim Rs. 10,000/- if Mr. Qasim's brother, who has been missing for several years, returns home alive. Is this a contingent contract?
Answer:
Yes, this is a contingent contract. Mr. Pawan's promise to pay is conditional upon a future event (the brother returning alive). The event is uncertain (it is not known if the brother is alive or will return). The event (brother's return) is collateral to the promise of payment. All essentials of a contingent contract are present.
Example 2. Ms. Rekha promises to sell her scooter to Ms. Seema for Rs. 30,000/-. The contract states that Ms. Seema will pay the price and Ms. Rekha will deliver the scooter on 1st November 2024. Is this a contingent contract?
Answer:
No, this is not a contingent contract. The obligations of both parties (payment and delivery) are fixed for a specific future date. Their performance is not dependent on the happening or non-happening of any uncertain collateral event. The date is certain, and the performance is absolute (unless frustrated by subsequent impossibility under Section 56, which is different from being contingent from the start). This is an ordinary absolute contract with future performance obligations.
Enforcement of Contingent Contracts
Enforcement of Contracts contingent on an event happening (Section 32)
Contingent contracts are not enforceable until the condition upon which they are based is met. Section 32 of the Indian Contract Act, 1872 deals with contracts contingent upon the happening of a future uncertain event.
Rule under Section 32
"Contingent contracts to do or not 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."
Explanation:
- Enforceable only upon happening of the event: The rights and obligations under a contract contingent on the happening of an event arise only when that event actually occurs. Until the event happens, the contract remains in a state of suspense; it is a valid contract, but not yet enforceable.
- Becomes Void if Event Becomes Impossible: If, before the contingent event occurs, it becomes impossible for that event to happen, then the contract becomes void. Since the condition can no longer be met, the performance based on that condition can never become due.
Example: A promises to pay B Rs. 10,000/- if B marries C. This is a contingent contract. The contract can only be enforced by B against A if B marries C. If B dies without marrying C, or if C dies, the event (B marrying C) becomes impossible. In that case, the contract becomes void, and B's legal representatives cannot claim the Rs. 10,000/- from A.
The contingency must relate to an 'uncertain' future event. If the event is certain, it's not a contingent contract under Section 31, but possibly an absolute contract with deferred performance.
Example 1. Mr. Gautam contracts to sell his property to Mr. Hari for Rs. 50 Lakhs if Mr. Gautam wins his ongoing court case against Mr. Iqbal regarding that property. Can Mr. Hari demand the property from Mr. Gautam before the court case is decided?
Answer:
No, Mr. Hari cannot demand the property or enforce the contract before the court case is decided. The contract is contingent on Mr. Gautam winning the court case (an uncertain future event). According to Section 32, a contingent contract to do something if an event happens cannot be enforced unless and until that event has happened. The contract to sell the property becomes enforceable only if Mr. Gautam wins the court case. Until then, it remains a contingent contract.
Example 2. Following the previous example, suppose Mr. Gautam loses the court case against Mr. Iqbal, and the court declares that Mr. Gautam is not the owner of the property. What happens to the contract between Mr. Gautam and Mr. Hari?
Answer:
If Mr. Gautam loses the court case, the contingent event upon which the contract with Mr. Hari was based (Mr. Gautam winning the case) becomes impossible (Mr. Gautam can no longer win it in that court). According to the second part of Section 32, if the event becomes impossible, the contingent contract becomes void. Therefore, the contract between Mr. Gautam and Mr. Hari for the sale of the property becomes void.
Enforcement of Contracts contingent on an event not happening (Section 33)
Just as contracts can be contingent on an event happening, they can also be contingent on an uncertain future event *not* happening. Section 33 deals with the enforcement of such contracts.
Rule under Section 33
"Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced by law when the happening of that event becomes impossible, and not before."
Explanation:
- Enforceable when happening becomes impossible: The contract becomes enforceable only when the happening of the specified uncertain future event becomes impossible. Until it is certain that the event will not happen (by its happening becoming impossible), the contract cannot be enforced.
- Not enforceable before: The contract cannot be enforced while there is still a possibility of the event happening.
Example: A promises to pay B Rs. 5,000/- if B's ship does *not* return. The contract can be enforced when the ship sinks (making its return impossible) or when the ship is destroyed. Until it is certain that the ship will not return, the contract cannot be enforced. If the ship returns safely, the event (ship not returning) becomes impossible (to *not* happen), and the contract becomes void.
Example 1. Mr. Jeet agrees to pay Mr. Karan Rs. 20,000/- if Mr. Karan's factory building in Delhi does not catch fire within the next six months. Three months later, the factory building is completely demolished for a new construction project. Can Mr. Karan claim the Rs. 20,000/-?
Answer:
Yes, Mr. Karan can likely claim the Rs. 20,000/- (or rather, the contract becomes enforceable). The contract was contingent on the factory building *not* catching fire within six months. The demolition of the building within three months makes it impossible for the building to catch fire within the remaining period or at all. Since the happening of the event (catching fire) has become impossible within the stipulated time due to demolition, the condition for the contract to be enforced (event not happening) is met (because it *cannot* happen). According to Section 33, the contract becomes enforceable when the happening of that event becomes impossible. Therefore, Mr. Karan can enforce the contract and claim the Rs. 20,000/-.
When events become impossible (Section 34)
Section 34 specifically addresses contingent contracts where the event is the future conduct of a living person.
Contracts contingent on future conduct of a living person (Section 34)
Section 34:
"If a contingent contract is based on the happening of an event which is the future conduct of a living person, that event shall be considered to become impossible when such person does anything which renders it impossible that he should so conduct himself within any definite time, or otherwise than under further contingencies."
Explanation:
- This section applies when the contingent event is tied to the future actions of a specific living person.
- The event is deemed to become 'impossible' for the purpose of the contract when that person does something that prevents them from acting in the specified way within the specified time (if any), or only allows them to act under further uncertain conditions.
Example: A promises to pay B Rs. 1,000/- if B marries C. The contingent event is B marrying C (future conduct of a living person). If C marries D, the event of B marrying C becomes impossible (as C is now married to someone else). The contract between A and B becomes void (under Section 32, because the event of B marrying C has become impossible).
Example: A agrees to pay B a sum of money if B marries C within 6 months. If B marries D within 6 months, the event (B marrying C) becomes impossible within the definite time. The contract becomes void.
This section clarifies that impossibility for contingent contracts based on a person's conduct can arise not just if the person dies, but also if they take actions that make the specified conduct impossible.
Example 1. Mr. Mohan promises to give Ms. Neha a job in his company if Ms. Neha obtains an MBA degree from a specific university within the next two years. After one year, Ms. Neha enrols in a different course in another field that makes it impossible for her to complete an MBA from the specified university within the remaining year. What happens to the contingent contract?
Answer:
The contingent contract was based on the future conduct of Ms. Neha (obtaining an MBA from a specific university within two years). By enrolling in a different course that prevents her from meeting this condition within the definite time, Ms. Neha has done something that renders the contingent event impossible (Section 34). As the event upon which the contract was contingent has become impossible, the contingent contract between Mr. Mohan and Ms. Neha becomes void (Section 32, as the event cannot happen). Mr. Mohan is no longer obligated to give Ms. Neha a job.
Contracts contingent on impossible events (Section 36)
As mentioned earlier, agreements contingent on impossible events are void from the very beginning.
Rule under 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 to the parties or not."
Explanation:
- If the event is inherently impossible (physically or legally) at the time the agreement is made, the agreement is void.
- It does not matter whether the parties were aware of the impossibility or not. The law treats the agreement as a nullity because the condition for performance can never be met.
Example: A agrees to pay B Rs. 10,000/- if B can make a dead person come back to life. This event is impossible. The agreement is void.
Example: A agrees to pay B Rs. 1,000/- if B discovers gold by digging in A's garden. Unknown to both, there is no gold in A's garden. The event (discovering gold in that specific garden) might be considered impossible. The agreement might be void.
This section reinforces that the contingency must be based on an event that is possible, however uncertain its happening might be.
Example 1. Mr. Prakash agrees to lease his property to Mr. Qureshi if Mr. Qureshi's ship, which sank two months ago, safely returns to Mumbai port. The sinking of the ship was unknown to both parties at the time of the agreement. Is the agreement valid?
Answer:
No, the agreement is void. The agreement is contingent on the safe return of a ship that had already sunk. The event (safe return of a sunken ship) is impossible at the time the agreement is made, whether known to the parties or not. According to Section 36, agreements contingent on impossible events are void. The agreement to lease the property is therefore void.
Contracts contingent on impossible events
Meaning and Consequences (Section 36)
The validity of a contingent contract depends heavily on the possibility of the event upon which it is contingent. If the contingent event is impossible, the contract cannot stand.
Rule under Section 36
Section 36 of the Indian Contract Act, 1872 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 to the parties or not."
This section deals specifically with contingent agreements where the condition is the happening of an impossible event.
Meaning of Impossible Event
An impossible event is one that cannot happen, either physically or legally. The impossibility must exist at the time the agreement is made.
- Physical Impossibility: An event that is naturally impossible to occur (e.g., running faster than the speed of light, making a dead person live again).
- Legal Impossibility: An event that is impossible to perform under the law (e.g., an agreement contingent on someone performing a criminal act, or marrying their own sibling where prohibited by law). Note that if the impossible event is also forbidden by law, it might also fall under Section 23 (unlawful object/consideration), but Section 36 specifically addresses the impossibility of the contingent event.
Void from the beginning
The most significant consequence of a contingent agreement being dependent on an impossible event is that the agreement is void ab initio (void from the very beginning). Unlike contracts that become void due to subsequent impossibility (Section 56, second para), these agreements are born void.
Key points:
- No Legal Effect: The agreement creates no legal rights or obligations from the moment it is made.
- Irrespective of Knowledge: It does not matter whether the parties were aware that the event was impossible at the time of entering the agreement. The objective impossibility of the contingent event renders the agreement void, regardless of the parties' subjective knowledge or belief.
- Cannot become enforceable: Since the condition (happening of the impossible event) can never be met, the contingent promise to do or not to do something can never become enforceable.
Example: A promises to pay B Rs. 5,000/- if B can make the Earth stop rotating. This is an agreement contingent on a physically impossible event. The agreement is void, whether A and B knew it was impossible or not.
Example: A agrees to pay B Rs. 10,000/- if B enters into a contract to commit murder. An agreement to commit murder is forbidden by law and impossible to validly contract for. If the contingency is based on the happening of this legally impossible act, the agreement is void under Section 36 (and also under Section 23 as having an unlawful object/consideration).
Example 1. Mr. Sharma promises to pay Ms. Verma Rs. 20,000/- if Ms. Verma's horse, which was already dead, wins the upcoming race. Ms. Verma was unaware that her horse was dead when they made the agreement. Is this agreement valid?
Answer:
No, this agreement is void. The agreement is contingent on an impossible event (a dead horse winning a race). According to Section 36, contingent agreements to do something if an impossible event happens are void, whether the impossibility is known to the parties or not. Ms. Verma's lack of knowledge about the horse's death is irrelevant to the validity of the agreement. The agreement is void from the beginning.
Example 2. Mr. Agarwal promises to pay Mr. Bajaj Rs. 50,000/- if Mr. Bajaj can, by magical powers, double the amount of gold in the Reserve Bank of India's vault. Is this agreement valid?
Answer:
No, this agreement is void. The event upon which the agreement is contingent (doubling gold by magic) is physically impossible. According to Section 36, contingent agreements based on impossible events are void. The agreement is unenforceable from the outset.