Under Section 6(3) of the Contract Act, if a proposal contains a condition precedent, in that case, the proposal is revoked upon the failure of the acceptor to fulfil the condition precedent. As a matter of fact, under Section 8 of the Contract Act, a proposal that contains a condition precedent, is only accepted upon the performance of that condition precedent by the acceptor. As a result, in the case of a condition precedent, a promise or contract does not come into existence until and unless the condition precedent is performed.
On the other hand, Chapter III, i.e., Section 31 to Section 36 of the Contract Act deals with contingent contracts. Under Section 31 of the Contract Act, 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. Therefore, under Indian law, a condition subsequent to a contract is an event, collateral to the contract, which may or may not happen. The contract, in such a case, is a contingent contract. According to the first part of Section 32 of the Contract Act, such a contract cannot be enforced until such condition subsequent is satisfied (See the Illustrations under Section 31 and Section 32 of the Contract Act)
However, according to the second part of Section 32 of the Contract Act, a contingent contract becomes void if the condition subsequent becomes impossible (See Illustration (c) under Section 32 of the Contract Act). This aspect has been dealt with in further detail below.
Secondary Material on Condition Precedent and Condition Subsequent
In Subbegowda v. Thimmegowda, reported at (2004) 9 SCC 734 at paragraph 6, in the context of transfer of property by deeds. The relevant extract is reproduced below:
“Condition may be condition precedent – a condition which must be performed before the grant or alienation takes effect to create an interest in property, or may be condition subsequent – a condition which has an effect of enlarging or defeating the interest already created or vested.”
According to the Editors of Pollock and Mulla’s Indian Contract Act, 14th Edition, Volume I (“Pollock and Mulla”), a condition subsequent is one which arises only on there being a concluded contract (See page 169 of Pollock and Mulla). A condition subsequent “follows the performance of the contract, and operates to defeat or annul it, upon the subsequent failure of either party to comply with the condition” (Raghunadha Reddy v. The State of Hyderabad, reported at AIR 1963 AP 110 at paragraph). The Editors refer to a condition subsequent as a “resolutive condition, as distinct from a suspensive condition or condition precedent, which prevents the existence of any obligation until the condition is satisfied”.
Whether a particular condition is a condition precedent or a condition subsequent will depend upon on the existence (or otherwise) of concluded contract amongst the parties and the nature of the condition. This evaluation will depend on the specific facts and circumstances of each case.
According to the Editors of Pollock and Mulla, where “it is contemplated that a formal document shall follow the offer and acceptance, the effect of such stipulation depends on whether the parties regard the offer and acceptance as sufficient to conclude the contract and intend the document to be a record of this contract, or they regard it as incomplete and do not intend it to be legally binding until the terms of the formal document are agreed and the document is duly executed in accordance with the terms of the agreement.” (See page 171 of Pollock and Mulla)
In Kollipara Sriramulu v. T. Aswathanarayana, reported at (1968) 3 SCR 387 at page 393, the Supreme Court also held that a mere reference to the execution of a future formal contract will not prevent the formation of a binding contract amongst the parties, unless the case is such where “the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed.”
In Jawahar Lal v. Union of India, reported at (1962) 3 SCR 769, the letter of acceptance of a bid by the Government of India was made subject to the deposit by the successful bidder of ten percent (10%) of the contract amount as security. However, the letter of acceptance clearly stated that the contract was concluded by the letter of acceptance although a formal acceptance would be issued only after the deposit of the security.
In D. Wren International Ltd. v Engineers India Ltd, reported at AIR 1996 Calcutta 424, while accepting the bid made by a party, one of the conditions of the letter of acceptance issued to the bidder by facsimile required the joint signature and acceptance of purchase orders (to be issued subsequently) by the bidder as well as its named American collaborator. The letter of acceptance was addressed to the bidder alone and was accepted by it. All negotiations prior to the issuance of the letter of acceptance had also been with the bidder alone, although the bidder was also representing the American collaborator in those negotiations. Further, there were letters in this case to show that the American collaborator supported the bid as a “joint consortium offer” together with the bidder. In these circumstances, following decision of the Supreme Court in Jawahar Lal’s Case, the Calcutta High Court held that the issuance of purchase orders and joint acceptance of the purchase orders were conditions subsequent to the contract.
In Jainarain Ram Lundia v. Surajmull Sagarmuli, reported at AIR 1949 FC 211, it was argued before the Federal Court of India that “no perfected contract” had come into existence between the parties, since it was “an essential condition” of the contract that certain persons must join the contract. The Federal Court agreed that when parties enter into an agreement on the clear understanding that some other person should be a party to it, obviously no perfected contract is possible so long as this other person does not join the agreement. However, in the facts of this case, the Federal Court did not agree that there was “no perfected contract” amongst the parties. In our view, the expression “no perfected contract” was used by the Federal Court in this case to refer to a contingent contract and the expression “an essential condition” of the contract was used to refer to a condition subsequent to a contract.
In Raghunadha Reddy v. The State of Hyderabad, reported at AIR 1963 AP 110 at paragraph 10, the Andhra Pradesh High Court held that “the important thing to note in a condition subsequent is that the promisor’s duty is, perfect in its inception, but later events according to express or unexpressed terms of the agreement, may absolve him from performance wholly or in part”.
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