CONTINGENT CONTRACT

Table of Contents

Introduction

‘Contingent Contract’ means enforceability of that contract directly depends upon an event’s happening or not happening.

example:– A contracts to pay B 1,00,000 if B’s house is burnt. This is a contingent contract

Section 31 of The Indian Contract Act, 1872 defines the term Contingent Contract

“A contract to do or not to do something, if some event, collateral to such contract, does or does not happen”

In simple words, contingent contracts, are the ones where the promisor perform his obligation only when certain conditions are met. The contracts of insurance, indemnity, and guarantee are some examples of contingent contracts.

Meaning of collateral Event

“An event which is neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise”.

Example;- A agrees to transfer his property to B if her wife C dies. This is a contingent contract because the property can be transferred only when C dies.

Essentials of a Contingent Contract

The performance of a contingent contract would depend upon the happening or non-happening of some event or condition.
The event is not part of the contract. The event should be neither performance promised nor consideration for a promise.
The contingent event should not be a mere ‘will’ of the promisor. The event should be contingent in addition to being the will of the promisor. Example:- If A promises to pay B 100,000 if it rains on 1st April and A leaves Delhi for Mumbai on a particular day, it is a contingent contract, because going to Mumbai is an event no doubt within A’s will, but raining is not merely his will
The event must be uncertain. Where the event is certain or bound to happen, the contract is due to be performed, then it is a not contingent contract. Example An’ agreed to sell his agricultural land to ‘B’ after obtaining the necessary permission from the collector. As a matter of course, the permission was generally granted on the fulfillment of certain formalities. It was held that the contract was not a contingent contract as the grant of permission by the collector was almost a certainty.

Rules relating to the enforcement of a Contingent Contract

Enforcement of contracts contingent on an event happening: Where a contract identifies the happening of a future contingent event, the contract cannot be enforced until and unless the event ‘happens’. If the happening of the event becomes impossible, then the contingent contract is void. Example:- A contract to pay B a sum of money when B marries C. C dies without being married to B. The Contract becomes void.
Enforcement of contracts contingent on an event not happening: Where a contingent contract is made contingent on a non-happening of an event, it can be enforced only when it’s happening becomes impossible. Section 33 says that “Where a contingent contract is made to do or not do anything if an uncertain future event does not happen, it can be enforced only when the happening of that event becomes impossible and not before”. Example:- Where ‘P’ agrees to pay ‘Q’ a sum of money if a particular ship does not return, the contract becomes enforceable only if the ship sinks so that it cannot return.
A contract would cease to be enforceable if it is contingent upon the conduct of a living person when that living person does something to make the ‘event’ or ‘conduct’ impossible of happening. Section 34 says that “if a contract is contingent upon as to how a person will act at an unspecified time, the event shall be considered to have become impossible when such person does anything which renders it impossible that he should so act within any definite time or otherwise than under further contingencies”. Example:- Where ‘A’ agrees to pay ‘B’ a sum of money if ‘B’ marries ‘C’. ‘C’ marries ‘D’. This act of ‘C’ has rendered the event of ‘B’ marrying ‘C’ impossible; it is though possible if there is a divorce between ‘C’ and ‘D’.
Contingent on the happening of specified event within the fixed time: Section 35 says that Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, becomes void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, the such event becomes impossible. Example:- A promises to pay B a sum of money if certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.
Contingent on a specified event not happening within fixed time: Section 35 also says that – “Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, may be enforced by law when the time fixed has expired, and such event has not happened or before the time fixed has expired, if it becomes certain that such event will not happen”.
Contingent on an impossible event (Section 36): Contingent agreements to do or not to do anything, if an impossible event happens are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.