Contingent Contract

By Sri Y.SRINIVASA RAO, Principal Senior Civil Judge, Tirupati ——


Contingent Contract:— Contingent Contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen, according to Section 31, Contract Act, 1872.

An agreement not enforceable by law is said to be void as per section 2(g) of the Indian Contract Act,1872 whereas section 2(h) says that an agreement enforceable by law is a contract.

Happening or non-happening of an event:—

Sections 32 and 33 of the Act are relevant to see this point. These provisions explain about the enforcement depends upon happening or non-happening of an event.
National Agricultural Coop. Marketing Federation of India v. Alimenta SA., 2020 SCC Online SC 381.

Enforcement of contingent contracts:—

Enforcement of contingent contracts is dealt under section 32 of Indian Contract Act,1872. Section 32 of the Act says as follows:
32. Enforcement of contracts contingent on an event happening.— 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.

Illustrations

(a) 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.


(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 him. The contract cannot be enforced by law unless and until C refuses to buy the horse.”

(c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.”

Section 32 of the Contract Act applies in case the agreement itself provides for contingencies upon happening of which contract cannot be carried out and provide the consequences.

In Satyabrata Ghose (supra) in Naihati Jute Milks Ltd. v. Khyaliram Jagannath, AIR 1968 SC 522, it held that if the contract contains implied or expressly a term according to which it would stand discharged on the happening of certain contingencies, dissolution of the contract would take place under the terms of the contract itself and such cases would be outside the purview of section 56 of the Contract Act. Such cases have to be dealt with under section 32 of the Contract Act. 

The interpretation of section 56 of the Contract Act :—

Section 56 of the Contract Act deals with the agreement to do an impossible act or to do acts afterward become impossible or unlawful. It also provides for liability of the promisor to do something which he knew or might have known with reasonable diligence an act which is impossible or unlawful; as such, the promisor must make compensation for the non­performance of the promise. See. National Agricultural Coop. Marketing Federation of India v. Alimenta SA.

The word “impossible” used in Section 56 of the Contract Act has not been used in the sense of physical or literal impossibility. It ought to be interpreted as impracticable and useless from the point of view of the object and purpose that the parties had in view when they entered into the contract. This impracticability or uselessness could arise due to some intervening or supervening circumstance which the parties had not contemplated. However, if the intervening circumstance was contemplated by the parties, then the contract would stand despite the occurrence of such circumstance. In such an event, “there can be no case of frustration because the basis of the contract being to demand performance despite the happening of a particular event, it cannot disappear when that event happens”.See. Satyabrata Ghose vs Mugneeram Bangur & Co.., AIR 1954 SC 44.

The first paragraph of the section lays down the law in the same way as in England. It speaks of something which is impossible inherently or by its very nature, and no one can obviously be directed to perform such an act. The second paragraph enunciates the law relating to discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done. The wording of this paragraph is quite general, and though the illustrations attached to it are not at all happy, they cannot derogate from the general words used in the enactment.

This much is clear that the word “impossible” has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose which the parties had in view; and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do.

Although various theories have been propounded by the Judges and jurists in England regarding the juridical basis of the doctrine of frustration, yet the essential idea upon which the doctrine is based is that of impossibility of performance of the contract; in fact impossibility and frustration are often used as interchangeable expressions. The changed circumstances, it is said, make the performance of the contract impossible and the parties are absolved from the further performance of it as they did not promise to perform an impossibility.

The parties shall be excused, as Lord Loreburn says: (F.A. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd. (1916) 2 AC 397 (HL) AC p. 406) ‘… If substantially the whole contract becomes impossible of performance or in other words impracticable by some cause for which neither was responsible.’

It must be pointed out here that if the parties do contemplate the possibility of an intervening circumstance which might affect the performance of the contract, but expressly stipulate that the contract would stand despite such circumstance, there can be no case of frustration because the basis of the contract being to demand performance despite the happening of a particular event, it cannot disappear when that event happens. As Lord Atkinson said in Matthey v. Curling, (1922) 2 AC 180 (HL): (AC p. 234) ‘… a person who expressly contracts absolutely to do a thing not naturally impossible is not excused for non-performance because of being prevented by the act of God or the King’s enemies … or vis major.’ This being the legal position, a contention in the extreme form that the doctrine of frustration as recognised in English law does not come at all within the purview of Section 56 of the Contract Act cannot be accepted.” See. National Agricultural Coop. Marketing Federation of India v. Alimenta SA.

To say in short, in case an act becomes impossible at a future date, and that exigency is not provided in the agreement on the happening of which exigency, impossible or unlawful, the promisor had no control which he could not have prevented, the contract becomes void as provided in section 56 of the Indian Contract Act.

However, section 56 also provides liability for a cause where the promisor has agreed to do something which he knew or with reasonable diligence might have known and which the promisee did not know to be impossible or unlawful. Such a promisor must make compensation to such promise and is liable to pay damages. The latter part of section 56 is applicable when promisee did not know the act to be impossible or unlawful and that it was not known to the promisor; the action was impossible or unlawful or with reasonable diligence might have known.

In National Agricultural Coop. Marketing Federation of India v. Alimenta SA, the Hon’ble Apex Court held that in deciding cases in India the only doctrine that we have to go by is that of supervening impossibility or illegality as laid down in Section 56 of the Contract Act, taking the word “impossible” in its practical and not literal sense. It must be borne in mind, however, that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.

Law of Contracts

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