Contingent Contracts under Sections 31–36 of the Indian Contract Act, 1872

A contract does not always require immediate and unconditional performance. Sometimes, the obligation of a party depends on whether an uncertain event happens or does not happen. Such agreements are governed by the law of contingent contracts under Sections 31 to 36 of the Indian Contract Act, 1872.

A contingent contract is therefore different from an ordinary contract because its enforceability depends upon the outcome of an event that is uncertain and collateral to the contract.

What Is a Contingent Contract?

Section 31 defines a contingent contract as a contract to do or not to do something if an event collateral to the contract does or does not happen.

Three features are important. First, the obligation is conditional rather than absolute. Second, the event must be uncertain. Third, the event must be collateral to the contract, meaning that it must be external to the actual performance promised by the parties.

For example, if A agrees to pay B ₹10,000 if B’s house is destroyed by fire, the fire is an uncertain event external to the agreement. The obligation to pay therefore depends on a collateral event.

Section 32 – Contract Contingent on an Event Happening

Under Section 32, a contract depending on the happening of an uncertain future event cannot be enforced until that event happens. If the event becomes impossible, the contract becomes void.

For example, A agrees to purchase B’s horse if A survives C. The agreement cannot be enforced until the contingency is resolved. If A dies before C, the required event becomes impossible and the contract becomes void.

The Supreme Court’s decision in National Agricultural Co-operative Marketing Federation of India Ltd. v. Alimenta S.A. illustrates the importance of Section 32 in commercial contracts. The contract made performance dependent upon obtaining government permission for export. When the required permission was not granted, the Supreme Court held that the contractual contingency had not been fulfilled and the contract became void under Section 32.

Section 33 – Contract Contingent on an Event Not Happening

Section 33 deals with the opposite situation: a contract that depends on an uncertain event not happening.

Such a contract becomes enforceable when the happening of that event becomes impossible. Until that point, the contingency remains unresolved.

For example, if A promises to pay B a sum of money if a particular ship does not return, the contract becomes enforceable when it becomes certain that the ship will not return.

Section 34 – Future Conduct of a Living Person

Section 34 deals with a contingency based on the future conduct of a living person. The event is treated as impossible when that person’s conduct makes the anticipated event impossible.

For example, A agrees to pay B if B marries C. If C marries another person, the possibility contemplated by the agreement is treated as impossible for the purposes of the provision. The contract consequently becomes void under the applicable rules governing contingent contracts.

The provision prevents a contract from remaining indefinitely dependent on a possibility that the relevant conduct has already ruled out.

Section 35 – Contingent Contracts with a Fixed Time

Section 35 deals with contingencies that must be resolved within a specified period.

Where a contract depends on an event happening within a fixed time, it becomes void if the event does not happen within that period or becomes impossible before the period expires.

Where the contract depends on an event not happening within a fixed time, it becomes enforceable when the period expires without the event occurring, or earlier if it becomes certain that the event will not occur within that period.

The fixed period therefore determines when the contingency is finally resolved.

Section 36 – Agreement Contingent on an Impossible Event

Section 36 provides that an agreement contingent on an impossible event is void, regardless of whether the parties knew that the event was impossible when they entered into the agreement.

This distinguishes an impossible contingency from an event that becomes impossible after a valid contingent contract has been made. In Gunjan Sinha Jain v. Registrar General, High Court of Delhi, the Delhi High Court considered this distinction and explained that an agreement based on an event that was already impossible does not first become a valid contract and subsequently become void.

Contingent Contract vs Ordinary Contract

The key distinction is that an ordinary contract creates an obligation that is not dependent on an uncertain collateral event, whereas a contingent contract makes performance dependent upon such an event.

The contingency must also remain uncertain. A condition involving something that is already certain to happen, such as the mere passage of time, does not by itself make a contract contingent under Section 31.

Why Are Contingent Contracts Important?

Contingent contracts are common in commercial transactions because parties often make performance dependent upon events outside their immediate control. Insurance arrangements, government approvals, financing conditions and certain commercial agreements may involve such contingencies.

Sections 31 to 36 determine when these agreements can be enforced and when they become void. Understanding the point at which the contingency is resolved is therefore central to applying these provisions.

Conclusion

Sections 31 to 36 of the Indian Contract Act, 1872 establish the legal framework for contingent contracts. The provisions determine when a conditional agreement can be enforced, when it becomes void and how different types of contingencies are treated.

The central question is always what event the parties made performance dependent upon and whether that event has happened, failed to happen, become impossible or remained unresolved within the prescribed period.

References

• The Indian Contract Act, 1872, Sections 31–36.
• National Agricultural Co-operative Marketing Federation of India Ltd. v. Alimenta S.A., (2020) 2020 SCC OnLine SC 381.
• Gunjan Sinha Jain v. Registrar General, High Court of Delhi, W.P. (C) No. 449/2012.
• Rojasara Ramjibhai Dahyabhai v. Jani Narottamdas Lallubhai, 1986 SCR (2) 447.
• Nemi Chand v. Edward Mills Co. Ltd.
• Pannalal Jankidas v. Mohanlal.