Bashir Ahmad v. Government of Andhra Pradesh

Facts

An agreement was made for sale of a book ('Tohfa-e-Osmania') and associated assets, contemplated for a company that was to be floated; the Government took delivery of the book and made an advance of Rs 50,000, with the balance to be invested in the company's capital. It was argued that the contract was a contingent contract, the contingency being the floating of the company. The Government performed the contract piecemeal, taking delivery of the book.

Issues

• Whether a contract entered into in contemplation of a company to be floated is a contingent contract under S.31.
• Whether non-formation of the contemplated company discharges the obligation to pay for goods actually delivered.

Arguments

The Government contended the contract was contingent on the company being floated, so failure to float it relieved liability. The plaintiff argued the obligation to pay for the book delivered was absolute and did not depend on the company coming into existence.

Held

The Court held that although the book was bought for the company to be floated, this did not make the contract contingent. Even if the company could not be floated, the plaintiff did not lose his right to enforce the contract. Having taken delivery of the book in part-performance, the Government was bound to pay the price stipulated in the agreement. The floating of the company was not a collateral uncertain event on which the very obligation to perform depended.

Ratio decidendi

A contract is contingent under S.31 only if performance genuinely depends on a future uncertain event collateral to the contract; an event that merely supplies the motive or background for the contract, or relates to the mode of performance, does not make the obligation contingent, and the obligation remains absolute.

Significance

A useful Supreme Court illustration of the boundary of S.31, holding that the collateral event must condition the very obligation, not merely furnish the occasion or motive. It complements the line of authority (e.g. Bhairon Prasad Chaurasiya v. Tara Devi) holding ordinary agreements to sell are not contingent contracts and distinguishes contingency from mere mode/time of performance.

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