Contingent Contract

  • Post last modified:20 December 2021
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What is Contingent Contract?

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.[Section 31]

Example: A contracts to pay B Rs.10,000/- if B’s house is burnt. This is a contingent contract.

A contingent contract contains a conditional promise. A promise is absolute or unconditional when the promisor undertakes to perform it in any event. A promise is conditional when performance is due only if an event, collateral to the contract, does or does not happen. Collateral means subordinate but from the same source, connected but aside from the main line.


Meaning of Contingent Contract

A contingent contract is a conditional contract and the condition implies in the contract is of uncertain nature. A contract, B to pay ₹5,000 on the expiry of the year 2008 or on the death of C. It is not a contingent contract because these events are of a certain nature.

But a contract to pay ₹5,000 on the destruction of a car in an accident is a contingent contract. Because that contingency may or may not happen. All contract of insurance contract of life insurance is not a contingent contract, guarantee and indemnity are contingent contracts.

According to 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.”

Examples:

  1. A contract to pay B ₹50,000 if B’s shop is burnt. This is a contingent contract.

  2. A agrees to purchase an old car subject to the approval of his mechanic. It is a contingent contract. iii. If land is to be sold by X to Y, at a price to be fixed by Z, it is a contingent. In a contingent contract the performance becomes due, only upon the happening of some event which may or may not happen.

    A contingent contract is different from reciprocal promises. In the contingent contract, the obligation is’ all on one side, while in the reciprocal promises, it is mutual. For the contingent contract it is essential that the particular event on the happening of which the contract is dependant must be an uncertain event.

    The event must be collateral to the contract. It can be said that the event must be unessential to the nature of the matter covered by the contract. It is also essential that the event must not form part of the consideration.

Essentials of Contingent Contracts

The following are the essential of contingent contract:

  1. Contract to do or not to do Something
  2. Depends Upon Contingency
  3. The Event Must be Collateral
  4. The Event May be within the Control of One or Both Parties or Out of Control of Both
  5. The Event Should Not Be Mere Will of the Promisor

Contract to do or not to do Something

Contract to do or not to do something: A contingent contract is to do or not to do something.

Depends Upon Contingency

The performance of the contingent contract is not complete. It depends upon the happening or non-happening in future of an uncertain event. Therefore, a contingent contract is different from an absolute contract, for example. A contracts B to sell his cycle for ₹1,000. It is an absolute and unconditional contract.

In this contract obligation of both parties arises when they entered into a contract. In the case of collateral contract obligation of the party does not arise unless and until the happening or non-happening of collateral.

The event must be uncertain i.e., it may or may not happen. If the event is sure, the contract is not contingent. It must depend upon the happening or non-happening in future of an uncertain event.

The Event Must be Collateral

The event must be collateral, i.e., incidental to the contract. An event that is “neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise” is called a collateral event.

For example in marine insurance, the insurance company promises to give certain money in case of an accident of ship, but the accident of ship is an uncertain event and it is collateral to contract.

Example: X gives a loan to Y and Z gives a guarantee. It is a contingent contract because Z will be liable only if Y fails.

Example: Following are the examples of uncertain events:

  1. Success in a litigation.
  2. Success in a competition.
  3. Occurring of an accident.
  4. Recovery from a serious disease etc.

The Event May be within the Control of One or Both Parties or Out of Control of Both

The event may be within the control of one or both parties or out of control of both: The event may be within the control of one or both parties or out of control of both. For Example, Y will land money to X on the promise or guarantee of Z. Similarly, the treasury will make payment to the contractor on the approval of a particular officer.

The Event Should Not Be Mere Will of the Promisor

The event should not be the mere will of the promisor. For example, X promises Y that he (X) will give ₹5,000 to Y on his own will. It can not be a collateral contract. A contingency does not depend on the mere will and pleasure of one of the parties to the contract.

Thus, an agreement to work on such salary as the employer pleases to pay. It cannot be a contingent contract.


Rules Regarding Contingent Contracts

Rules regarding the enforcement or performance of the contingent contracts are given in Sections 32 to 36 of the Act. They are as under:

  1. Enforcement of Contracts Contingent on an Event Happening
  2. Enforcement of Contracts Contingent on an Event Not Happening
  3. If Event on Which Contract Is Contingent to Be Deemed Impossible, if It Is the Future Conduct of a Living Person
  4. When Contracts Become Void Which Are Contingent on Happening of Specified Event Within Fixed Time
  5. When Contracts May Be Enforced, Which Are Contingent on Specified Event Not Happening Within Fixed Time
  6. Agreements Contingent on Impossible Event Void

Enforcement of Contracts Contingent on an Event Happening

Section 32 of the Indian Contract Act says that contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened.

Therefore, contingent contracts dependent on the happening of a certain event can be enforced only on the happening of such event. They can be never a complete contract until the uncertain future event happens and cannot be enforced until the event has happened.

Example:

  1. ‘A’ makes a contract with ‘B’ to buy B’s shop, till ‘C’ services. This contract cannot be enforced by law unless and until C dies in A’s life time.
  2. A makes a contract with B to sell a cow to B at a specified price, if C, to whom the cow has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the cow. Section 32 also was that if the contingent event became impossible of performance, the contract became void.

Example: A contracts to pay B ₹1,000 when B marries C. C dies without being married to B. The contract becomes void.

Enforcement of Contracts Contingent on an Event Not Happening

According to Section 33, “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.”

Example: A agrees to pay B ₹2,000 If a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks because the return of the ship is not possible.

If Event on Which Contract Is Contingent to Be Deemed Impossible, if It Is the Future Conduct of a Living Person

Section 34 says that when the future event on which a contract is a contingent is the way in which a person will act at an unspecified time, the event shall be considered to 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: A agrees to pay B ₹5,000 If B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B.

When Contracts Become Void Which Are Contingent on Happening of Specified Event Within Fixed Time

According to Section 35 of the Indian Contract Act, “Contingent contracts to do or not to do anything 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.”

Example: A promises to pay B ₹10,000 if a certain ship returns within six months. The contract may be enforced if the ship returns within six months and becomes void if the ship does not return or, is burnt within six months.

When Contracts May Be Enforced, Which Are Contingent on Specified Event Not Happening Within Fixed Time

Section 35 also says, “Contingent contract to do or not to do anything, if a specified undertaken 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.”

Example: A promises to pay B ₹15,000 if a certain ship does not return within a period of six months. The contract may be enforced if the ship does not return within six months period, or is burnt within this period.

Agreements Contingent on Impossible Event Void

According to Section 36 of the Act, “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 agreement at the time when it is made.”

Examples:

  1. A agrees to pay B ₹5,000 if two straight lines should enclose at a space. The agreement is void because two straight lines cannot be enclosed.

  2. A agrees to pay B ₹10,000 if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void because C has been dead. Section 36 of the Indian Contract Act is based on the principle that persons cannot contract to do any impossible thing or make their contracts depend on the happening of any impossible event.

Difference Between Contingent Contract and Wagering Agreement

The main points of difference between contingent contract and wagering agreement are given below:

S. No.Basic of DifferenceContingent ContractWagering Agreement
1.SectionThese contracts are dealt with under sections 31 to 36 of the Indian Contract Act.Wagering agreements are dealt with under Section 30 of the Act.
2.MeaningA contingent contract is a contract to do or not to do something. If some event, collateral to such contract does or does not happen.A wagering agreement is an agreement to pay money or money’s worth upon the happening or non-happening of an uncertain event.
3.ScopeAll contingent contracts are not wagering agreements. Its scope is wider. It includes a wager a Wagering agreement is a contingent agreement.A contingent contract need not necessarily be a wager. All wagering agreements are contingent.
4.Interest of PartiesIn the case of contingent contracts, all parties have an interest in the subject matter of the contract. They are interested in the happening or non-happening of an uncertain event.In the case of a wagering agreement, parties have no interest in the subject matter other than the money to win or lose. Party is not interested in the happening or non-happening of the event.
5.PerformanceIn this case, all parties intend to perform the contract.In a wagering agreement, any party does not internal desire to perform the agreement.
6.Future uncertain EventFuture uncertain event is only collateral or incidental to the contract.The future uncertain event is the sole determining factor.
7.Mutuality of PromisesIn it, mutual promises are not essential.
Example: X promises Y to pay ₹5,000 if ship does not return. Here X is making a promise to pay but Y is not making a similar promise to Pay X thus there is no mutuality or promises.
In wagering agreements, promises must be mutual.
Example: X agrees to pay Y ₹5,000 if it rains on Sunday and if it does not rain Y will pay ₹5,000 to. X Here there is a mutuality of agreement.
8.Major ConditionDetermination of an uncertain extent is not the sole condition.In wagering agreements determination of uncertain events is the main condition.
9.Independent InterestIn the case of a contingent contract, there is an independent interest. Example: X gets his shop insured. It is a contingent contract as X has an independent interest.There is no independent interest apart from the money to be lost or won. Example X promises to pay ₹15,000 to Y if it rains on Wednesday it is a wagering agreement.
10.ValidityIt is valid unless they are declared by law to be bad.It is invalid/void under Section 30 of the Indian Contract Act.
Difference Between Contingent Contract and Wagering Agreement

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