Contingent Contracts

The word ‘contingent’ means to be dependent or conditioned by some other event or fact. The contingent contract thus means a contract in which the enforceability of promise is conditional depending upon the occurrence of an event. According to Section 31 of the Indian Contract Act, 1872,

‘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.’

In simple terms, it is a contract in which the foundation of doing a promise lies with a happening of an uncertain event. Thus, all insurance contracts are contingent contracts. Illustration– Alex agrees to pay Bob Rs. 20,000 if his garage is burnt. This contract is contingent.

Essentials of a Contingent Contract:

  1. Conditional performance: The performance of the contract must depend upon an uncertain event to be regarded as a contingent contract. A contract that is subject to absolute certainty is not a contingent contract. It must be noted that if an event has already happened but the parties don’t know about the result of the event then it can be considered a contingent contract.
  • Contingency to be collateral to the contract: The happening or non-happening of an event must be collateral to the contract. If the event forms a consideration in the contract then it won’t be a contingent contract. Illustration- A contract to pay an amount of Rs. 10,000 if the ship sinks is a contingent contract. The contract was entered but the performance has to be executed only when the event of the sinking of the ship has taken place.
  • The event must not depend upon the will of the promisor: Wherein the happening or non-happening of an event depends upon the discretion of the party then it won’t be considered a contingent contract. Illustration: A agrees to pay B Rs. 10,000 if A buys a new car. This is not a contingent contract.

Enforcement of the Contingent Contract

Sections 32 to 36 of the Indian Contract Act, 1872 govern the enforcement of the various kinds of contingent contracts. They have been explained as follows:

  • Section 32- Enforcement of contracts contingent on an event happening: It implies that a contract to fulfil the promise on happening of an uncertain future event is not enforceable unless that event has actually happened. In case the event concerned becomes impossible then the contract becomes void. In Jethalal C. Thakkar v R.N. Kapoor, [1] it was agreed to buy the shares of a bank when it would be converted into a financial corporation. The contract was regarded as a contingent contract based upon a future uncertainty it possesses.

Illustration: A makes a contract with B to buy B’s cow if A survives C. This contract cannot be enforced by law unless and until C dies in A’s lifetime.

  • Section 33- Enforcement of contracts contingent on an event not happening: A contingent contract to do or to abstain from doing something will be enforceable on the non-happening of an uncertain future event. Thus the parties have to wait till the concerned event becomes impossible to enforce the contract.

Illustration: A agrees to pay B a sum of money if C’s car fails to reach Delhi in 60 minutes. The car was caught in an accident on the way, making the action impossible. The contract can be enforced.

  • Section 34- When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person: When the event for which the parties are waiting is linked with the future conduct of a person, that is to say, where the contract is enforceable if a certain person is to act in a certain way, the event shall be considered to have become impossible if that person does something which makes it impossible that he should act in that way in any definite time or without further contingencies being fulfilled [2]. In Frost v. Knight [3] the defendant promised to marry the plaintiff when his father would die. However, the defendant married someone else when his father was alive, rendering the earlier contract impossible. The plaintiff was held to be entitled to sue the defendant for the breach of contract.
  • Section 35- When contracts become void, which are contingent on happening of specified event within fixed time: A contingent contract will be enforceable if a specified uncertain event happens within a fixed time. However, if the event has not taken place within the fixed time or it has become impossible to occur before the expiration of the fixed time, then such contract is considered void.

Illustration: A agrees to pay B Rs. 10,000 if a certain ship reaches Europe in five months. The contract can be enforced if the ship reaches Europe in fixed time or in case the ship has sunk before the expiration of five months the contract will be rendered void.

  •     Section 35- When contracts may be enforced, which are contingent on specified event not happening within the fixed time: A contingent contract will be enforceable if a specified uncertain event does not happen within the fixed time. Such contract is enforced either on the expiration of the fixed time or when the event has become impossible to occur making before the fixed time is over.

Illustration: A promises to pay B a sum of money if a certain ship does not return within two years. The contract can be enforced either after the expiration of 2 years or if the ship has sunk rendering the event impossible to happen.

  •    Section 36- Agreements contingent on impossible event void: When an agreement is based on the contingency of an impossible event then such agreement is considered to be void.

      Illustration: A agrees to pay B a sum of money if he will successfully bring his dead dog to life. The event concerned is impossible to perform thus the agreement is void.

Difference between wagering agreements and contingent contracts:

BasisContingent Contract  Wagering Agreement
PositionContingent contracts are valid under Indian Contract Act, 1872Section 30 of the Indian Contract Act, 1872 states wagering agreements as void.
Future eventFuture event is collateral to such contract.An uncertain future event is an essential.
PerformanceContract is made in present but performance is to be done on the basis of occurrence of future event.No present obligation is created. The performance implies winning or losing a wager.

Conclusion: The contingent contracts though based on future uncertainty are considered valid in nature. The performance depends on the contingency of event collateral to the contract. The rules governing the enforcement of the contingent contracts have been laid down in Sections 32 to 36 of the Indian Contract Act, 1872.

References:

  1. AIR 1956 Bom 74.
  2. Dr Avtar Singh, Contract Act and Specific Relief, EBC, 12th Edition, 2017, p- 357.
  3.  (1872) LR 7 Exch 111.

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