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CONTRACTS LAW
PROJECT ON:
SUBMITTED BY:-
Dr. VISHALAKSHI
Ayush Tiwari
ACKNOWLEDGEMENT
We, Ayush Tiwari and Avinash Maurya, the First Year Law scholars at Dr. Ram Manohar Lohiya
National Law University, Lucknow, are highly grateful towards our lecturer Mrs. Vishalakshi,
who gave us the opportunity to study this topic and because of her help and support, this project
has reached its completion. I would also like to thank the library staff of Dr.Ram Manohar
Lohiya National Law University, Lucknow, for their patient and diligent support in the making of
this project.
Last, we would like to acknowledge our friends who helped us in the research needed for this
project.
We have tried our best to include all the aspects discussed in the given case, yet, ignorance or
any mistake is deeply apologized.
Thanking you,
Yours sincerely,
Ayush Tiwari and Avinash Maurya
Introduction
A contract is an agreement enforceable by law. [Section 2(h) of The Indian Contract Act, 1872].
For every contract, there should be an agreement that 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. This definition of contracts as per Indian Contract
Act, 1872 is based on Sir Pollocks definition which states that every agreement and promise
enforceable at law is a contract. Thus for the formation of a contract, there must be an agreement
and something in addition to that, i.e., an agreement, and its enforceability of law1.
The word contingent ordinarily means subject to chance. In the Indian Contract Act, 1872, this
word has been used to mean conditional, just the way we use it generally. Uncertainty is the hallmark of the future. Estimating the chances of an uncertainty becoming certain, calculating the
results if the event doesnt happen and then measuring the potentiality to deal with its
consequences are all about contingent contracts. Parties may stipulate that performance of
obligations under a contract is dependent on a contingency, even though the contract is validly
formed2. The parties agreeing to the conditions agree that the rights will be enforced and the
obligations will be due on the happening of the contingency on the contracting of a valid
contract.
Section 31 to 36 of The Indian Contract Act, 1872 deal with this type of contract. Section 31 of
the Act defines contingent contract thus:
A contingent contract is a contract to do or not to do something, if some event, collateral to such
contract does or does not happen3 .
Every contingent contract is thus 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 events happening or not happening- the contingency.
This case of Chandulala vs. Commissioner of Income Tax is the best example of a contingent
contract4.
On June 23, 1959, a policy called Childrens Deferred Endowment Assurance for a sum of Rs.
50,000/- was issued by the Life Insurance Corporation of India. The proposer was Harjivandas
Kotecha, the father of the appellant (hereinafter called the assesse) and the life assured was that
of the assesse. The premium payable in respect of the policy was Rs. 1,925/ per annum. That
amount was paid as premium out of the taxable income of the assesse. In the course of the
assessment for the assessment year 1960-61, the assesse claimed rebate on the insurance
premium of Rs. 1,925/ under the provisions of s. 15(1) of the Income-tax Act, 1922 (hereinafter
called the Act). The Income-tax Officer rejected the claim on the ground that under the said
policy the life of the minor assesse had not been assured. The Appellate Assistant Commissioner
agreed with the Income- tax Officer and held that the claim of the assesse was rightly rejected.
The assesse took the matter in further appeal before the appellate Tribunal but the appeal was
dismissed. The appellate Tribunal stated a case to the High Court on the following question of
law: Whether rebate under s. 15(1) of the Income- tax Act, 1922 is admissible on the premium
payable as per Annexure A during the minority of the assesse?
The High Court of Gujarat answered the reference in favour of the respondent. It held that the
contract of insurance with the Life Insurance Corporation was entered into by the father of the
assesse and under the terms thereof the contract was to become the assesses contract only by his
adopting it on attaining majority. The High Court further held that on the true interpretation of
the terms of the contract, even if the minor were to be alive on the deferred date it was the
assessees father who was entitled to receive the cash option unless the assesse adopted the
contract as his own. The High Court, accordingly observed that the real contracting parties were
the father of the assesse and the Life Insurance Corporation and it was only under certain
contingency on the happening of which the contract was to become the contract of the assesse
Essential Elements
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. These
are the following essentials:
future time7. The event has to be very futuristic and uncertain. Dues and obligations dont come
under the definition of being uncertain. An event becomes uncertain only if its occurrence is not
in the hands of any individual and the time is in future. It should be totally unpredictable for
anyone.
These are the most essential elements of a contingent contract. A contract when fulfills the above
discussed criteria, it can be deemed to be a valid contingent contract. A contingent contract is
also a contract; but with some specific requirements and these essential requirements makes a
contract a contingent contract.
The Contrast
Contingent contracts form a very important part of The Indian Contract Act, 1872. These
contracts have certain elements in them which make them different from every other type of
contracts.
i.
Section 32 of The Indian Contract Act, 1872 provides that contingent contracts to do or not to do
anything of an uncertain future event happen cannot be enforced by law unless and until that
14 Rao V Kesava, Contract I, Lexisnexis, 2004 Print
event has happened. For instance, if X makes a contract with Y to buy Ys horse if X survives Y.
this contract cannot be enforced by law unless and until Y dies in Xs lifetime. In the case of
Bashir Ahmed & others vs Government of Andhra Pradesh15, the respondent contracted to
purchase a book of medical prescriptions in order to start a company for the manufacture and
sale of Unani Medicines. The book was taken into possession after part payment but the purpose
of taking the book couldnt be fulfilled. The appellant filed a suit to recover the balance amount.
The defence was that the contingent event of forming a company wasnt yet fulfilled. The court
rejected this contention and held that the contract was not contingent on the event of the
formation of the medical company. This case law is a good example as to differentiating the
event and making a contract enforceable only after the occurrence of the event. The enforcement
of the contract is envisaged when, primarily, the contract is contingent on the happening of an
event. If it is not contingent on an event, it is not enforceable16. Therefore, for any contingent
contract to be contingent, the event has to occur before fulfillment of the conditions of the
performance of the contract.
ii.
held that there was no chance left that the defendant would marry the plaintiff. Thus, she was
entitled to sue him. As soon as the man married another woman, it was sure that the event of the
marriage of the plaintiff and the defendant would not occur. Thus, the plaintiff had the right to
sue him.
iii.
by the defendant company. It entered into a contract with the plaintiffs predecessor for the sale
of a plot of land to the latter accepting a small sum of money as earnest. It undertook to
construct roads and drains and the conveyance was to be completed soon after the completion of
tile roads on payment of the balance of the price. As a considerable portion of the area comprised
in the scheme was requisitioned by the Government for military Purposes in 1941, the company
wrote to the defendant that the road construction could not be taken up for an indefinite period
and required him to treat the agreement as cancelled and receive back his earnest. It was held that
having regard to the nature and terms of the contract, the actual existence of war condition at the
time when it was entered into the extent of the work involved in the scheme fixing no time limit
in the agreement for the construction of the roads etc., and the fact that the order of requisition
was in its very nature of a temporary character, the requisition did not affect the fundamental
basis of the contract nor did the performance of the contract become illegal by reason of the
requisition, and the contract had not therefore become impossible.
Thus, these are the conditions when a contingent contract can become void and it cannot be
enforced.
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
21 Rao V Kesava, Contract I, Lexisnexis, 2004 Print
22 The Indian Contact Act, 1872 Bare Act, Professional Book Publishers, 2014 Print
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 events 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.