CHANAKYA NATIONAL LAW

UNIVERSITY

Project Report
on
“Contingent contract”
(Contracts)

Submitted to: Submitted by:

Sushmita Singh Raju Patel

Faculty: Contracts Roll No: 1960
Course: B.A LLB



 ACKNOWLEDGEMENT


The present project on the “CONTINGENT CONTRACT” has been able to get its
final shape with the support and help of people from various quarters. My sincere
thanks go to all the members without whom the study could not have come to its
present state. I am proud to acknowledge gratitude to the individuals during my study
and without whom the study may not be completed. I have taken this opportunity to
thank those who genuinely helped me. With immense pleasure, I express my deepest
sense of gratitude to Mrs. Sushmita Singh, Faculty for law of Contract, Chanakya
National Law University for helping me in my project. I am also thankful to the whole
Chanakya National Law University family that provided me all the material I required
for the project. Not to forget thanking to my parents without the co-operation of which
completion of this project would not had been possible.

I have made every effort to acknowledge credits, but I apologies in advance for any
omission that may have inadvertently taken place.

Last but not least I would like to thank Almighty whose blessing helped me to
complete the project.

Name: Raju Patel

Roll No.: 1960
Course: B.A.LLB

Page No: 2
 DECLARATION
I hereby declare that the work reported in B.A. L.L.B(HONS) project entitled
“CONTINGENT CONTRACT” submitted at Chanakya national law university is an
authentic record of my work carried out under the supervision of Mrs. Sushmita
Singh, Faculty for Law of Contracts. I have not submitted this work elsewhere for
any other degree or diploma. I am fully responsible for the contents of my project
report.

RAJU PATEL

Roll No. – 1960

2ND Semester

B.A.LLB

Page No: 3
 TABLE OF CONTENTS

Topic
S. Page No.
No,
1. Acknowledgement

2 Research Methodology

a) Method of Research


b) Sources of Data


c) Method of Writing

d) Research Questions

e) Mode of Citation

3 Introduction

4 Meaning of Contingent Contract

a) The Virtues of Contingent Contract

b) Essential Characteristics of Contingent Contracts

c) Wagering Agreements and Contingent Contracts

5 Statutory Analysis

a) Rules Regarding Contingent Contract

6 Judiciary Analysis

a) Case Laws

7 Conclusion



8 Bibliography

Page No: 4
 Ø Method of Research

The researcher has used an empirical method of research as well as an analytical research method.
The researcher analysed the contact between various multinational companies where there has been
a contract between the vendor and the purchaser. The reason is to determine the practical aspect of
discharge of contract. The researcher wants to observe the difference in the situation where a
standard of a product has been mentioned in the contract as well as the absence of such clause.
Besides this, the researcher also wants to analyse the various provisions relating to a discharge of
contract by performance and applicability of such clauses in the contract. Besides analytical
research method is used observe various provisions as well as precedents on the working and rules
regarding the performance of a contingent contract. For the present research, various tools of data
collection are through primary and secondary sources. Primary sources include case laws, contracts,
legislation and statutes. Secondary sources for this research includes various authors, articles in
journal, magazines, newspaper and websites.

Ø Sources of Data
The following secondary sources of data have been used in the project-
a) Cases
b) Books
c) Internet

Ø Research Questions
1) How does one measure the ‘standard of performance’ that must be complied with when it
comes to discharging of contract by performance?
2) Are there any complexities to discharge a contingent contract considering its uncertain state
of happening?
3) How is a discharge of contract by performance different in a contingent contract?

Ø HYPOTHESIS
As per the first research question, the standard of performance can be measured by a quality
standard that has to comply which is mentioned in the contract. This makes the parties easier to
comply with such standards but the standard of performance is not one of the key aspects in a
contract, that is, some contracts may not be mentioned the required standards that have to be
complied with. In other words, the measure of a standard is not one of the key aspects that must be
mentioned in the contract in order to make it enforceable.
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Thus, there are times that parties may not agree upon the standards required or expected by the
parties but at the time of enforcement and discharge of contract, the quality of the product may
become a big issue. The measure of such standards may be done as per the consideration amount
as well as the ‘reasonable’ expectation by the buyer.

The second research question is with respect to compliance with the contingent contract as there is
an uncertainty of the happening of the event. The complexity lies in the uncertainty of even because
the binding of the contract does not come into effect until and unless the uncertain event happens.
There are also chances that the parties may opt out of it before the event occurs as the contract has
not come to effect. Thus, it is a very interesting area of contract where there is conditional
implementation. The research question points out to the fact of implementation and discharge of
such contingent contracts. One of the major areas that are included under contingent contract is
insurance contracts where the question is if the uncertain event does not take place then what will
bind the contract between the insurance companies as well as its customers? A contract of insurance
is generally under the nature of a contract of indemnity but life insurance, personal accident and
sickness or contract of contingency insurance is a part of contingent contract.1

The third research question is with respect to the performance of a contingent contract and how
much is the difference between any other contract and contingent contract as a contingent contract
only comes into existence when the uncertain event occurs

Ø LIMITATION OF RESEARCH

This paper only deals with discharge of a contract by a performance which is by two different means
that is, actual as well as attempted. Then the latter part of the paper deals with the contingent
contract, which is a contract that depends on the uncertainty of the event and the difference between
the discharge by performance in a contract and discharge of contingent contract.

1
United India Insurance Company Ltd. v. Kantika Colour Lab & Ors. 2010 (4) AWC 3265 (SC) (2010).

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 INTRODUCTION

According to Section 31 in the Indian Contract Act, 1872.

“A contract to do or not do something, if some event, collateral to such contract does or does not
happen”.
So in simple words, it may be defined as conditional contract.
Quite a good part of commercial business transaction consists of contingent contract; hence the
necessity for the separate treatment for such contracts. They are also known as “conditional
contracts”. In such contracts, the liability is not absolute but dependent upon the happening or
not happening of a certain event,
E.g.: Arrival of a ship, production by a particular mill, etc. Ordinary contract some of insurance
are also contingent contract, so also contracts of guarantee and indemnity.

It is important to note in this connection that it is not every contract in which liability is dependent
on a contingent that can be called a contingent contract. Thus A’s promise to pay Rs. 500 to B if
B marries C. In other words, if the contingency is of the essence or foundation of the contract,
there is no case for a contingent contract. It is only if the contingency is as regards matter
“collateral”, i.e. incidental to the main purpose of the agreement that the contract can be called a
“contingent contract”. Thus a builder contract with a stipulation that payments shall be against
the architects’ completion certificate, and insurance company’s contract to pay “if claim is
properly made and proved to the directors’ satisfaction” are contingent contracts.

Notice in this connection that a contingency depend on the mere will and pleasure of one of the
parties to the contract is not enough. Thus an agreement to work on such payment as the employer
pleases to make, is no contract at all. The contingency must be dependent on the act of a party,
even though the act is voluntary or discretionary. Thus an agreement to pay “as A shall decide,”
is a good contract. A under the agreement is bound to exercise his discretion honestly and not
capriciously.

Page No: 7
 Meaning of Contingent Contract:

Ø A contract may be unconditional or absolute on the one hand and conditional or contingent
on the other. The absolute or unconditional contract is one without any reservations or
conditions and is to be performed under any event. On the other hand, conditional or
contingent contract is one in which a promise is conditional and the contract shall be
performed only on the happening or not happening of some future uncertain event. The
event must be collateral to the contract. The condition may be precedent or subsequent.

A collateral event is defined as one which is neither a performance directly promised as part
of the contract, nor the whole of the consideration for a promise. The event, therefore
independent of the contract and does not form part of consideration to it.

The performance of such a contract depends on contingency and such contingency is
uncertain. The test of determining whether the contract is contingent or not, is
uncertainty. If contingency is certain it is not a contingent contract.

a) The virtues of Contingent Contract:

Ø Two parties with common interests fail to reach an agreement--about a sale, a merger, a
technology transfer--because they have different expectations about the future. They are
both so confident in their prediction, and so suspicious of the other side's motives, that they
refuse to compromise. Such impasses are hard to break through.
Fortunately, they can often be avoided altogether by using a straightforward but frequently
overlooked type of agreement called a contingent contract. The terms of a contingent
contract are not finalized until the uncertain event in question--the contingency--takes place.
In some areas of business, such as compensation, contingent contracts are common: a CEO's
pay is tied to the company's stock price, for instance. But in many business negotiations,
contingent contracts are either ignored or rejected out of hand. That's a mistake, according
to the authors.

v In an increasingly uncertain world, flexible contingent contracts can actually be more rational
and less risky than rigid, traditional ones. In particular, contingent contracts offer six benefits:

Page No: 8
 o They enable a difference of opinion to become the basis of an agreement, not an
obstacle to it.
o They cancel out the biases of negotiators
o They level the playing field by reducing the impact of asymmetric information;
o They provide a means of uncovering deceitful dealings
o They reduce risk by sharing it among parties and
o They motivate parties to fulfil their promises

While contingent contracts are not appropriate in all instances, they are much more broadly
applicable than managers may think.

b) Essential Characteristics of a Contingent Contract:
• There should be existence of a contingency; happening or non-happening of some event
in future.
• Contingency must be uncertain.
• The event must be collateral, for example incidental to the contact.

c) Wagering Agreement And Contingent Contract:

The points of distinction between the two may be noted as follows:

1) A wagering agreement is a promise to give money or money’s worth upon the
determination or ascertainment of an uncertain event. A contingent contract, on the other
hand, is a contract to do or not to do something if some event, collateral to such contract
does or does not happen.
2) In a wagering agreement the uncertain event is the sole determining factor, while in a
contingent contract the event is only collateral.
3) A wagering agreement is essentially of a contingent nature whereas a contingent contract
may not be of a wagering nature.
4) A wagering agreement is void whereas a contingent contract is valid.
5) In a wagering agreement, the parties have no other interest in the subject matter of the
agreement except the winning or losing of the amount of the wager. In other words, a
wagering agreement is a game of chance. This is not so in case of a contingent contract.

Page No: 9
 STATUTORY ANALYSIS

Rules Regarding Contingent Contracts:

I. Enforcements of contracts contingent on happening of a future uncertain

event: (Sec.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.2

ILLUSTRATIONS:
a. A makes a contract with B to buy B’s houses if A survives C. This contract cannot be
enforced by law unless and until C dies in A’s life time.
b. A makes a contract with B to sell a house to B at a specified price, if C to whom the house
has been offered refuses to buy. The contract cannot be enforced by law unless and until C
refuses to buy the house.
c. A contracts to pay B a sum of money when B marries C. C dies without being married to
B. The contact becomes void.

Contracts so contingent become void when the event becomes impossible. Performance of such
contract becomes impossible as the event on which the contract was contingent becomes impossible
for example, imposition of government restrictions.

APPLICABILITY:
The essential idea upon which doctrine of frustration is based is that of impossibility of
performance of contract; Satyabrata Ghose v. Mugneeram Bangur, AIR 1954 SC 44.

II. Enforcement of contracts on the non-happening of a future uncertain event:
(Sec 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 the event becomes impossible and not before.

2
Illustration (b) to section 35
Page No: 10
ILLUSTRATION:
• A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The
contract can be enforced when the ship sinks.

III. Contracts Contingent on future Conduct of a living Person: (Sec. 34)

If future event 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 future contingencies.3

ILLUSTRATION:
• 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,

IV. Contracts contingent on a specified event happening within a fixed time: (Sec
33(1)).
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.4

ILLUSTRATIONS:
• A promises to pay B a sum of money if a certain ship returns within a year. The contracts
may be enforced if the ship returns within the year, and becomes void if the ship is burnt
within the year.

3
. Section 34
4
. Illustration (a) to Section 35
Page No: 11
 JUDICIARY ANALYSIS
v CASE LAWS :

Ø HPA International v. Bhagwandas Fateh Chand Daswani and Ors.5

(Supreme Court of India)

o Facts :
Due to likelihood of Coercive recovery of public dues by attachment and sale of property by
public auction, sale of property was necessities (this fact was recited in agreement) and
defendant entered into an agreement with plaintiff for sale of above-said property on certain
terms: firstly, vendor was to surrender entire interest in suit property to vendee, inclusive of
his own life-interest and that of reversioners free from all encumbrances, against sale
consideration; secondly, vendor was to get the sanction of the Court for sale of interest of
reversioners in the property at his own expenses; thirdly, in Court’s refusing to grant the
sanction, vendor was to return back the earnest money paid by vendee on account of
agreement standing cancelled. Though vendor filed a suit in Court for seeking the
aforementioned sanction but two reversioners objected to the same and in view of prolonged
proceedings (for almost two years) and pressing demands from tax authorities for payment of
public dues, vendor abrogated the agreement and instructed his lawyer to withdraw the suit.
Even when replying to the alleged ‘breach’ of contract by vendor, vendee did not express
desire to purchase life interest of vendor alone without insisting on performance of entire
obligation as in contract. However, the suit was not withdrawn but was joined by vendee as
co-plaintiff. It was only after vendee requesting the said Court to grant him only life interest
of vendor, leaving aside his earlier claim for interest of reversioners also, was the said suit
declared as infructuous. The vendee filed the present appeal for obtaining a decree for specific
performance against vendor and reversioners.

ISSUES:
1) Whether during the pendency of the suit for sanction, actions on the part of the vendor
such as terminating contract by notice, instructing lawyer to withdraw the suit,
amounted to breach of the contract?

5
. Appeal (civil) 6006 of 2001
Page No: 12
 2) Whether the performance of obligation of vendor to transfer his lone title also arose upon
the sanction of the Court and not otherwise?

HELD:

1) Since there were pressing demands from public authorities requiring vendor to discharge
public debts, and the sale of the property was an urgent necessity well before the
impending initiation of coercive recovery by the authorities (as recited in the agreement
also), hence, in view of prolonged proceedings before the said Court for sanction (due to
opposition by reversioners), vendor could not have waited for an “unreasonably long time”
of pendency of sanction suit. “Obtaining the Court’s sanction within a reasonable time and
in any case, well before the initiation of recovery proceedings for debt, was in
contemplation of parties as implied term”; since even after waiting for a reasonable time
court’s sanctions was not obtained, hence repudiation was not breach.

2) When an agreement is entered into subject to ratification by others not party to contract, a
concluded contract is not arrived at and such ratification is held to be condition precedent for
coming into force of a concluded contract.”

The contract stipulated the transfer of entire interest in the property of that of vendor and of
reversioners, hence, was one single indivisible contract, conditional upon sanction of the Court. The
reversioners were not parties to contract and parties were conscious that vendor had only life interest
in property and he could not convey more than his own interest. Therefore, it was in contemplation
of parties that transfer of entire interest was conditional upon sanction of the Court been granted,
hence, the obligation of vendor to transfer his own title was also subject to sanction of the Court
unless varied by agreement. Since such variation never took place nor was asked by vendee even
during initiation of Court proceedings, hence, it will be inequitable for vendor to be compelled to
give specific performance.

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 Ø Bashir Ahmed v. Govt of Andhra Pradesh6
(Supreme Court of India)

o FACTS
In This Case The Government of Hyderabad agreed to Purchase Plaintiff’s book of Unnani
medicinal prescriptions, ‘Tohfa-e-osmania’with a view to floating a limited company for the
manufacture and sale of Unnani medicines. The total compensation determined to be payable
to him was Rs. 2,00,000. A sum of Rs. 50,000 was paid to him as advance and the book was
taken from him. Proposal to form the company did not materialize. The Plaintiff sued to
recover the balance of Sum agreed, i.e.- Rs. 1,50,000. The defendant refused to pay the
amount. It rather wanted to return the book and claimed the refund of rs. 50,000 on the ground
that the contract was contingent upon floating of the company.

o HELD :
It was Held that the contract was not the contingent one and the plaintiff had a right to
enforce the contract.

6
AIR 1970 SC 1089
Page No: 14
 Ø C.L. Katilal v. Mrs. Madden7
(Supreme Court of India)

o Facts
There was agreement of sale Which contained a clause to the effect that the vendor was to obtain
the sanction of the Chief commissioner for transfer of the site on which the the building was
constructed within two months. Such sanction was necessary on account of a condition in the
ground lease.

o Held
It was held that such a contract does not remain remain inchoate unless and until such sanction
is obtained, when there is nothing to suggest that the application for sanction is likely to be
rejected. So far as the parties to the agreements are concerned, the agreement is a complete
agreement. The mere fact that sanction of the chief commissioner is to be obtained before the
sale doesn’t make the agreement incomplete and Is not bar to the grant of a decree for specific
performance. If the Chief commissioner does ultimately refuse sanction to the sale, the plaintiffs
will not be able to enforce their decree but, as far as the court is concerned, there is no reason
for refusing the decree.

7
A.I.R 1963 Punj. 136
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 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.

Page No: 16
 BIBLIOGRAPHY
Books Referred:
1. Pathak H.S. (2006) (Mulla) The Indian Contract Act Eleventh Edition Chapter 3, p.112.
Lexis Nexis Butterworths New Delhi, India
2. Bangia, R.K. (2018) Contracts I Chapter 7, p. 266

Website Referred:
1. https://www.netlawman.co.in/ia/indian-contract-act?pageContentID=198
2. http://www.niee.org/cases/78-88/case81-1.htm
3. https://indiankanoon.org/
4. https://www.wikipedia.org/

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