LI Network
Published on: January 9, 2024 at 22:20 IST
The Patna High Court recently deliberated on the enforceability of a sale agreement with a contingency clause, emphasizing that such agreements cannot be enforced until the contingent event has transpired.
In a case concerning the specific performance of a sale agreement, the Court dismissed an appeal, citing Section 31 of the Indian Contract Act, 1872 (ICA), which states that a sale agreement with a contingency clause cannot be legally enforceable until the contingent condition is fulfilled.
Justice Khatim Reza highlighted, “The agreement for sale was subject to a contingency, and unless that contingency was fulfilled as per Section 31 of the Indian Contract Act, it couldn’t be enforced. The execution of the contract depended on the civil court’s decisions in the probate case (Title Suit No. 7 of 1990). As long as the contingency wasn’t met, the contract couldn’t be enforced.”
The appeal contested the Trial Court’s rejection of a Title Suit under Order 7 Rule 11. The Appellants sought specific performance based on a sale agreement with the Respondents, the sons of Shambhu Ram.
The agreement hinged upon a probate case concerning the property originally owned by Shambhu Ram. After his demise, a registered Will favored the Respondents.
The agreement for sale between the parties was contingent on the resolution of the probate case. The Appellants claimed part performance, alleging possession of a shop and a pending payment of Rs. 14,49,000 for the sale. However, the suit was filed before the probate was granted to the Respondents.
The High Court examined the sale agreement and noted its dependency on the outcome of the probate case. Considering Section 31 of the ICA, the Court highlighted that the contract’s enforcement rested on decisions made by the civil court in the probate case, indicating a contingent agreement rather than a conclusive one.
Section 32 of the ICA was referenced, stating that a contingent contract can only be legally enforced once the uncertain future event has materialized. As the probate case’s judgment in favor of the defendants had not occurred, the Appellant lacked a cause of action for the suit.
In line with these observations, the Court dismissed the Appeal, underscoring the necessity of fulfilling a contingent event for the enforcement of such agreements.
