Contingent Contract vs Conditional Promise: Conditions Precedent, Subsequent and Concurrent, Conditions Going to the Existence of the Contract, and the Difference Between a Contingency and a Term

Every contingent contract is conditional, and not every conditional promise is a contingent contract. The word condition is used in at least four senses in contract law, and they produce different consequences. A condition may go to the existence of the contract, so that until it is satisfied there is nothing at all. It may go to the obligation, so that the contract exists but performance is not yet due, which is the contingent contract of Section 31. It may be a term of the contract that one party has promised to bring about, in which case its failure is a breach. Or it may be a condition subsequent, defeating an obligation that has already arisen. Identifying which is in issue decides the remedy.

1. The Four Senses of Condition

2. Conditions Going to the Existence of the Contract

The first category is the most drastic, because until the condition is satisfied there is no contract at all, not even a conditional one. The classic instance is a document signed on the footing that it shall not operate unless a third party approves.

The device is familiar in modern drafting as the expression subject to contract, and as a stipulation that a document shall not take effect until approval by a board, a regulator or a lender. The consequence is that neither party is bound in the meantime, and either may withdraw. This is why an acceptance expressed to be subject to confirmation concludes no contract, as Union of India v. Bhim Sen Walaiti Ram, AIR 1971 SC 2295 and Haridwar Singh v. Bagun Sumbrui, AIR 1972 SC 1242 decide.

3. Conditions Going to the Obligation: The Contingency

Where the contract exists but the obligation depends on a collateral event, the arrangement is a contingent contract under Section 31, and Sections 32 to 36 govern. Two features distinguish it from the first category. The parties are bound from the outset in the sense that neither may withdraw, and the contract has legal effects immediately: it may be assigned, it may be repudiated anticipatorily, and limitation may be affected. And its failure produces voidness with restitution under Section 65, not the simple absence of any transaction.

4. Conditions That Are Promises

The most frequent error is treating a party's own promise as a contingency. If one party has undertaken to obtain the licence, to complete the works, or to deliver the goods, that is a term and not a collateral event. Section 31 requires the event to be collateral, which means outside the contract and not something either party has promised to bring about.

1. The failure of a promised condition is a breach. The other party may claim damages under Section 73 and, where the failure goes to the root, may treat the contract as repudiated under Section 39.
2. The failure of a genuine contingency is not a breach at all. Nobody has broken anything; the contract simply becomes void under Section 32.
3. A party may be under an implied obligation to try. Where a contract is conditional on a permission, the party best placed to apply for it is ordinarily under an implied duty to do so and to use reasonable efforts, as Chandnee Widya Vati Madden v. Dr. C. L. Katial, AIR 1964 SC 978 illustrates.
4. A party cannot rely on a contingency he has himself prevented. Section 53 makes the contract voidable at the option of a party who is prevented from performing, and the general principle is that no one may take advantage of his own wrong.

5. Conditions Subsequent

A condition subsequent defeats an obligation that has already arisen. The contract is fully operative from the outset and continues until the event occurs, at which point the obligation determines. Rights that accrued before the event are not disturbed.

Conditions subsequent are common in practice: a right to return goods within a stated period, a right to terminate on a change of control, a provision that a grant shall determine on a stated event, and a clause defeasing an interest on breach of a covenant. The onus ordinarily lies on the party asserting that the condition has operated, since the obligation is admitted to have arisen.

6. Conditions Concurrent

Where two obligations are to be performed simultaneously, each party's performance is a condition of the other's, and neither can sue without showing that he was ready and willing. This is governed not by Chapter III but by Section 51, under which where a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform unless the promisee is ready and willing to perform his reciprocal promise. Payment against delivery in a cash sale is the standard instance, and the relevant question is readiness and willingness, not contingency.

The same word, four different legal effects

7. Working Out Which Applies

1. Ask whether the parties intended to be bound before the condition was satisfied. If not, the condition goes to the existence of the contract and Pym v. Campbell applies.
2. Ask whether either party promised to bring the event about. If yes, it is a term, and its failure is a breach.
3. Ask whether the event is outside the control of both parties. If yes, and they are bound in the meantime, it is a contingency under Section 31.
4. Ask whether the obligation had already arisen before the event. If yes, the condition is subsequent and defeats an existing obligation rather than postponing one.
5. Ask whether the two performances were to be simultaneous. If yes, the question is one of readiness and willingness under Section 51, not of contingency at all.

8. The Position Stated Shortly

1. The word condition is used in four senses: existence, obligation, term and condition subsequent.
2. A condition going to the existence of the contract prevents any contract from arising, per Pym v. Campbell, and oral evidence is admissible to prove it.
3. A condition going to the obligation is a contingency under Section 31, governed by Sections 32 to 36.
4. A condition a party has promised to bring about is a term, and its failure is a breach under Sections 39 and 73, not a failed contingency.
5. A party under an implied duty to apply for a permission must use reasonable efforts, per Chandnee Widya Vati Madden.
6. A party cannot rely on a contingency he has himself prevented, and Section 53 makes the contract voidable at the option of the party prevented.
7. Head v. Tattersall: a condition subsequent defeats an obligation that has already taken effect, and rights accrued before it are not disturbed.
8. Simultaneous performances are governed by Section 51 and the test of readiness and willingness, not by contingency.
9. The label in the document is not decisive; the court construes the substance of the clause.

9. Related Topics and Provisions