Source: Patna High Court

Why in News?

Recently, the Patna High Court in the matter of Urmila Devi Jain & Ors v. Ashok Kumar & Ors., has held that as per the provisions of Section 31 of the Indian Contract Act, 1872 (ICA) a sale agreement with a contingency clause cannot be enforced unless that contingency is fulfilled.

What is the Background of Urmila Devi Jain & Ors v. Ashok Kumar & Ors. Case?

• The plaintiffs filed a suit for a decree of specific performance of contract on the basis of an agreement for sale executed by defendant.
• The plaintiffs sought relief for a decree of a specific performance of contract in respect of the suit property.
• The plaintiff contended that the property originally owned by Shambhu Ram was later transferred to the Respondents through a registered Will after his demise.
• The trial court rejected the plaint under the provisions of Order 7 Rule 11 of Code of Civil Procedure, 1908 (CPC).
• Thereafter, an appeal has been filed before the High Court of Patna which was later dismissed.

What were the Court’s Observations?

• Justice Khatim Reza observed that unless that contingency was fulfilled, the contract was not capable of enforcement as stated in Section 31 of the ICA.
• The Court held that the agreement to sale was not a conclusive contract. The performance of it was certainly contingent upon such decision being available in favor of the defendants.
• It was further held that as per the findings of the learned trial court, the plaint being hit by provisions of Section 31 and 32 of the ICA, would not carry forward the case of the appellants as, in any case, the plaint deserved to be outrightly rejected.

What are the Relevant Legal Provisions Involved in it?

Section 31 of ICA

About:

• This section defines contingent contract.
• It states that 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.

Illustration:

• A contracts to pay B Rs. 10,000 if B’s house is burnt. This is a contingent contract.

Essentials of Contingent Contract:

• There must be a contract between the parties.
• The contract must be to do or not to do something.
• The performance of the contract depends upon the happening or not happening of some future event.
• The happening of event must be uncertain at the time of the agreement.
• If the event becomes impossible, the contract will become a void contract.

Case Law:

• In Chandulal Harjivandas v. CIT (1967), it was held by the Supreme Court that all contracts of insurance and indemnity are contingent.

Section 32 of ICA

About:

• This section deals with the enforcement of contracts contingent on an event happening.
• It states that the 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.

Illustration:

• 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.