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Contingent Sale Of Goods Contract

This research paper deals with the Contingent Sale of Goods Contract. It discusses the nature of this type of contract and also critically analyzes the issue and the regulatory gaps involved. It discusses the existing laws with respect to the topic of contingent sale of goods contracts.

The regulatory gaps are examined and the future prospects of this category of the contract have been discussed. Contingent sale of goods contract deals with a situation of contingent conditions that are required to be fulfilled before the sale of goods actually takes place. It is an agreement to sell.

Nature And Scope
The contract of contingent sale of goods involves a contingency clause which has to be fulfilled before the actual sale of goods takes place and the goods are delivered to the buyer. Suppose there is a seller A who has an orange orchard and he enters into a contract with person B to sell two hundred kilograms of oranges to him, provided this given amount of oranges are grown in the orchard and are ready to be sold on a specified date, this is a contingent contract as it is dependent on the contingency clause that the oranges are grown and fit to be sold on the date specified. This is a situation that may or may not happen.

There can be a situation when the trees do not produce enough oranges, or they have been destroyed by a storm or a natural disaster, or maybe they are stolen. Therefore, the oranges will only be sold to B when the contingency clause has been fulfilled i.e. the oranges are grown in the orchard. Now, whether the oranges are grown or not is an uncertain event that may or may not happen. So, when the seller is dependent on a contingency regarding the goods that are to be sold, then this type of contract becomes a contingent sale of goods contract.

Section 6(2) of the Sale of Goods Act, 1930 relates to the contingent sale of goods contract. It says that it may happen that the seller is dependent on a contingency that is uncertain. The goods involved in this type of contract are called contingent goods. This type of contract is also an agreement to sell under Section 4(3) of the same act. An agreement to sell is an agreement wherein the transfer of the goods is dependent on some condition or a contingency in the future. The delivery will only take place after the condition has been fulfilled. The sale will be initiated when the contingent event has taken place.

Section 31 to 36 of the Indian Contract Act, 1872 deal with contingent contracts.

The definition of these types of contracts is given under Section 31 of the Act as:
A contract to do or not to do something, if some event, collateral to such contract, does or does not happen[1]

In the case of Bashir Ahmed & Ors. V Govt. of Andhra Pradesh[2], the respondent had purchased a book for starting a medical company. Only a part payment was made in this respect. The company could not be started. This was not held to be a contingent contract but an absolute one.

Critical Analysis
Non-happening of an Event
The Sale of Goods Act, 1930 provides for contingent contracts under Section 6(2) of the Act. Thus, it is subject to those conditions and these conditions have to be fulfilled before the seller delivers the goods. However, the Act does not mention anything about the case of non-happening of an event, what if the conditions are not fulfilled and the buyer has already paid some amount with respect to the price of the goods. In this case, there would be no remedy for the buyer as the contract would be of no value if the condition has not been fulfilled. The above scenario is very much possible as the contract is subject to a contingency which may or may not happen.

Right to Re-sell
Suppose a seller who is under an agreement to sell certain goods to a buyer sells the goods to some other person other than the original buyer, in this case, the subsequent buyer will have a good title and the original buyer can only sue the seller for damages under Section 57. This is a regulatory gap as to what if the original buyer was in urgent need for those goods and because of the default of the seller, he could not have them on time.

Proper Care from the Seller
There is no provision to ensure proper and due care on the side of the seller. For eg- if A and B enter into a contract according to which if C sells his farm to A then A will sell 100 kgs of wheat from that farm to B. Now the happening of the sale of wheat depends upon the sale of farms from C to A.

Thus, it is a contingent contract. Now, if the required condition is fulfilled i.e. C sold his farm to A but before he could give the produce to B, it got affected by the disease due to which the crops were destroyed and could not sell the wheat to B. In this case, even though the required condition was fulfilled the happening of the event became impossible making the contract void. But there is no provision to check or at least take into consideration whether the seller (A) took proper care in ensuring that the crops don't catch diseases.

Time Specifications
In case of a contingent sale of goods contract becoming void even after the fulfillment of the condition due to the neglect of the seller the information of which is being found quite some time after the contract was declared void, there is no provision that specifies the time period up to which the buyer can sue the seller in case of negligence from his side.

Impact Of The Regulatory Gaps And Future Prospects
The first regulatory gap deals with the non-happening of an event. If the buyer pays a certain amount and the contingency does not take place, the buyer would face a loss as the specific remedy has not been mentioned in the Act. There should be a provision providing for this sort of uncertainty as this type of a contract is uncertain which may or may not take place.

 According to Section 32 of the Indian Contract Act, the contracts that are contingent on an event that will happen in the future cannot be enforced until that event takes place. If in case, the event has become impossible, the contract will be considered as void. In the case of Jethalal C. Thakkar v R.N. Kapoor[3], there was a contract to buy shares of a bank only when the bank is converted into a financial enterprise.

This is contingent depending upon the condition of conversion into a financial corporation, the contract can only be enforced when the contingency has been fulfilled. In the case of Pym v Campbell[4], there was a contingent contract to buy the benefits of an invention only when it is approved by the engineer. However, the contingency did not take place and hence the contract was void.

The second grey area deals with the right to re-sell. The Act gives the seller the right to re-sell even when he contracted with another buyer. There was an agreement to sell on his part, however, he transfers the title to a subsequent buyer. Although, he can be sued for damages but what if the original buyer was in urgent need of those goods and it is impossible for him to get them from somewhere else in a short amount of time.

The third one is the proper care from the seller. There should be some provisions under which the buyer has the right to check whether proper care is being taken by the seller and he should be provided with the right to sue the seller on the grounds of negligence in case of contingent sale of goods contract.

Also, there should be provisions in the Sale of Goods Act specifying the time period in which one party can sue the other party for negligence after the end of the contract dealing with contingent goods.

Conclusion And Suggestion
The contingent sale of goods act is an agreement to sell. It is given under Section 6 (2) of the Sale of Goods Act, 1930. Section 4(3) provides for agreement to sell. The contingent contracts have also been provided under Section 31-36 of the Indian Contract Act, 1872.

The regulatory gaps that have been identified are-what if the happening of the event on which the contract is dependent does not happen, then the buyer and seller can sue for damages only in case of non-acceptance or non-delivery including re-selling of goods, the urgent need has not been taken into consideration. Then, there is no provision that provides for proper care of the goods from the seller and the time specifications to sue in case of negligence from the seller's side. These provisions should be provided for the smooth functioning of the contingent sale of goods contracts.

End-Notes:
  1. Section 31 of the Indian Contract Act, 1872.
  2. AIR 1970 SC 1089
  3. AIR 1956 Bom 74.
  4. (1856) 6 El&Bl 370, 119 ER 903
Written By:
  1. Shambhavi Tripathi (3rd Year BBA-LLB]
  2. Muskaan Dalal (3rd Year BBA-LLB)

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