Contingent Contract

1) Introduction:

The word ‘Contingent’ means to depend on something which is uncertain or happening by chance. As per Section 31 of the Indian Contract Act, 1872 a contingent contract is a contract to do or not to do something, if some event, surety to such contract, does not happen. When the contract is dependent or conditional upon the happening or non-happening of a certain future event then the contract is considered as a contingent contract. For e.g., X contracts to pay B of Rs. 10,000/- if B’s house is burnt, then this is contingent contract because contract is depended on the happening of the event i.e., burning of house. The payment of the amount is contingent on the happening of a collateral event i.e., the burning of the house. All contracts of insurance or indemnity aim at payment of money only after a certain event happens, or any loss arises, so they are contingent contracts.

A difference is to be drawn between a contract under which a present obligation is created but performance is rescheduled to a future date and a contract under which there is no present obligation at all and the obligation is to arise by reason of some condition being observe with or some contingency arising in future.

Case Law: Harbaksh Singh Gill v. Ram Ratan[1]

In this case, the vendor was agreeing to sell his half share in the disputed property, but the sale deed was to be executed after the month of the partition of the property and the separation of his share. The vendor undertook to get his share separated but failed to get that done. It was held that, the contract was not contingent so not frustrated by the vendor’s own wrong or failure to get his share separated. The vendee was held entitled to obtain an order restricting the vendor from transferring the property to somebody else.

When the performance of the contract is not dependent on the happening of some event surety to the contract, it is an absolute contract and it must be performed completely.

Case Law: Bashir Ahmed v. Government of Andhra Pradesh[2]

 In this case, the Andhra Pradesh Government was agreed to purchase plaintiff’s book of Unani medicinal prescriptions with a view to floating a limited company for the manufacture and sale of Unani medicines. The total compensation determined to be payable to him was Rs. 2,00,000/-. A sum of Rs. 50,000/- was paid to him as advance and the book was taken from him. Proposal to form the company did not materialise. The plaintiff sued to recover the balance of the sum agreed, i.e., Rs. 1,50,000/-. The defendant refused to pay the amount. It rather wanted to return the book and claimed refund of Rs. 50,00,000/- on the ground that the contract was contingent upon the floating of the company. It was held that the contract was not a unforeseen one and the plaintiff had a right to enforce the contract.

If the contingency of a contract was neither pleaded by the defendant in the written statement nor argued before the trial court, the plea about the same cannot be raised in appeal.

In a contingent contract, there should be some event collateral to the contract. If the event consists in performance of the contract itself by one of the parties, then it is not considered as contingent contract. For e.g., Mr. P announces a reward of Rs. 500/- to be paid to anyone who finds his lost watch. Mr. T finds the watch. Mr. T’s act of finding the watch is acceptance of the offer as well as the performance of the contract. This is not a unforeseen contract.

2) Rules for the enforcement of contingent contract:

1. contracts contingent on an event happening:

Contingent contracts to do or not to do something if an unsure future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible then such contract become void.

Examples:

a. Mr. Ajay makes a contract with Mr. Sujay to buy Mr. Sujay’s house if he survives Mr. Raj. This contract cannot be enforced by law unless and until Mr. Mr. Raj dies in Mr. Ajay’s life-time.

b. Mr. D makes a contract with Mr. X to sell a car to Mr. C at a specified price, if  Mr. C, to whom the car has been offered refuses to buy the car. The contract cannot be enforced by law unless and until Mr. C refuses to buy the car.

c. Mr. X contracts to pay Mr. V a sum of money if Mr. V marries to C. C dies without being married to Mr. V. the contract becomes void.

2. Contracts contingent on the event not happening:

Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before. For e.g., Mr. P agrees to pay Mr. S a sum of money if a certain ship does not return. This ship is sunk. The contract can be enforced when the ship sinks.

3. Contracts contingent on the future conduct of a living person:

If the future event on which a contract is contingent is the way in which a person will act at an unstated time, the event shall be considered to become impossible when such person does anything which renders impossible that he should so act within any definite time or otherwise than under future contingencies. For e.g., if Mr. A agrees to pay Mr. B a sum of money if Mr. C marries to D. The marriage B to C must now be considered impossible, although it is possible that D may die, and that Mr. C may afterwards marry Mr. B.

4. Contracts contingent on happening of specified event within fixed time:

Contingent contracts to do or not to do anything and if a specified uncertain event happens within a fixed time, become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible. For e.g., Mr. Ajay promises to pay Mr. Sujay a sum of money if a 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.

5. Contracts contingent on not happening of specified event within a fixed time:

Contingent contracts to so or not to do anything if a specified uncertain event does not happen within a fixed period, may be enforced by law when the period 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. For e.g., Mr. X promises to Mr. Y to pay a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

6. Agreements contingent on impossible event:

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.

Examples:

a. Mr. Y agrees to pay Mr. Z, Rs. 5,000/- if two straight lines should enclose a space. This agreement is void.

b. Mr. R agrees to pay Mr. T, Rs. 4,000/- if Mr. T will marry Mr. R’s son, V. Mr. V was dead at the time of the agreement. This agreement is void.

3) References:

1. https://www.vedantu.com/commerce/contingent-contract

2. http://bdlaws.minlaw.gov.bd/act-26/chapter-details-81.html

3. https://www.legalserviceindia.com/legal/article-5046-contingent-contracts.html

4. https://indiankanoon.org/doc/463976/

5. https://legalstudymaterial.com/contingent-contracts/


[1] https://indiankanoon.org/doc/1835101/

[2] https://indiankanoon.org/doc/1403281/

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