Contingent Contract

This article has been written by Shivani Kumari, a student of Lloyd law college, Greater Noida. This article will impress upon a type of contract which is contingent. Contingent contracts are uncertain contracts and depend upon the occurrence and non -occurrence of a certain event.

INTRODUCTION

A contract is defined under section 2(h) of the Indian contract Act, 1872. A contract is a legally binding promise between the parties to fulfill the terms and conditions in return for some lawful consideration. The basic elements of a contract are proposal, acceptance, intention to create a legal relationship, competency to contract, free consent, and lawful consideration. If a contract does not satisfy these elements, then the contract is said to be void.

A Contingent contract is derived from the Indian contract Act, 1872 under section 31-36. According to the definition given under section 31 of the Indian Contract Act, 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’. These contracts are mainly formed for some uncertain event and the enforceability of such contracts directly depends upon happening or not happening of those events. The main element which differs from other contracts is, it is not dependent on consideration rather it is dependent on condition. Whenever a condition is fulfilled, the contract is said to be discharged. The contract made on an impossible event is void.

Main Provisions

The performance of a contingent contract depends upon the happening or non- happening of some future events.
The event upon which the performance of a contingent contract depends must be collateral to the contract, not a party of consideration of the contract.
A contingent contract must have all the essential elements of a valid contract.

Enforcement of a Contingent Contract

The provision for enforcement of a contract is given under section 32-36 of the Indian Contract Act.

Section 32: Enforcement of contracts contingent on an event happening

A contingent contract is made on certain conditions, the moment that condition happens, the contract is enforced. It is the contract to do or not to do anything in an uncertain future event, however it cannot be enforced by law unless that event has happened.

For instance- A makes a contract with B to sell his horse at a specified price. However, a condition was included, if C to whom the horse has been offered, refuses to buy. Here, the contract cannot be enforced unless C refuses to buy the horse.

Section 33: Enforcement of contract contingent on an event not happening

This type of contract relies on not happening at an event. These contracts are unassertive. It is to do or not to do anything if an uncertain future event does not happen, however, this can be enforced only when the happening of this event becomes impossible.

For instance- A and B make a contract and A agrees to pay B a sum of money if a certain ship does not return which means either the ship sunk or lost in the sea/ ocean. The Sinking of the ship makes the contract enforceable by law.

Section 34: Enforceability of contingent contract on the conduct of a living person

Under this section, a contract is contingent to be deemed impossible, if it is the future conduct of a living person. These types of contracts are not time-bound and thus create an exceptional condition for the parties involved. It is enforceable if the act shall be considered as impossible. The main element of this contract is the future conduct of the living person.

For instance- A makes a contract with B and agrees to pay a sum of money to him, if B marries C, meanwhile C gets married to D. the marriage between B and C must be considered impossible until D dies and that C may afterward marry B.

Section 35: contracts contingent on an event happening within the fixed time

Fixed time is the essence of these types of contingent contracts. A contingent contract is enforceable if an uncertain event happens within a fixed time. Such a contract is void if the event does not happen and the time lapses. It is also void if before the time is fixed, the happening of the event becomes impossible. It is similar to the happening and not happening of the contract but it is time-bound.

For instance- A and B make a contract and A agrees to pay B a sum of money if any certain ship will not return within a year. The contract is enforceable if the ship does not return within the year.

Section 36: Agreements on impossible events are void

A contingent agreement to do or not to do anything for an impossible event happens, are void. the impossibility of the event may be known or not to the parties to the agreement at the time when it is made. In simple words, whenever a contract is made for an impossible event, the agreement becomes void.

For instance- A agrees to pay B a sum of money if B will marry C. C was dead at the time of the agreement. Thus this event is impossible and thus void.

Usage of Contingent Contract

Insurance: Every insurance company may be a life insurer, health insurer, or fire insurer, because uncertain events deal with contingent contracts. Insurance is an agreement by which a company undertakes to provide a guarantee of compensation for specified loss or damage in return for the payment of a specified premium.

For instance- In a life insurance contract, the insurer pays a certain amount if the insured dies under certain conditions. The insurer is not called into action until the event of the death of the insured happens. This is a contingent contract.

Indemnity: Contract of indemnity is a contract in which one party promises to save the other party from loss caused to him by the Promisor or someone else. These contracts are based on uncertain events.

The case of Chandulal Harjivandas v. Commissioner of Income-tax held that the contract of indemnity and insurance are contingent contracts.

Guarantee: A contingent guarantee is a promise to make a future payment as long as certain contractual terms are met. A contingent guarantee is often used when the seller is doing business with a buyer with whom there is an increased risk of default.

All the three above mentioned contracts are the commercial application of contingent contracts.

CONCLUSION

A Contingent contract is a contract based on assurance. These contracts do not involve reciprocal promises. It is a valid contract under the Indian Contract Act, 1872. The parties involved in these contracts have an interest in this. ‘Contingent contracts’ are also called ‘conditional contracts’ in English law. The terms of these contracts are certain and depend on the occurrence or non-occurrence of a future event.

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