Contingent Contracts

The meaning of Contract according to the Indian Contract Act is an agreement between two parties on acceptance of an offer from one party to the other. A contract is enforceable by law. The main ingredient of a contract is the mutual promise between two parties to perform an act as decided in the agreement. In a contract, the promises which are made by both parties in an agreement are bound for the parties to follow. Contracts are divided into different types based on performance and non-performance. So, contracts are divided into two types. The two main types of contracts are Firstly, absolute contracts which means a contract in which both parties perform their part without any requisite conditions and secondly, contingent contracts in which the contract basically depends on the happening and non-happening of an event.

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This Story also Contains

1. Contingent contracts Meaning
2. What is the Difference between a Contingent contract and a Wagering agreement?
3. Essential ingredients of a contingent contract
4. Rules Regarding Enforcement of Contingent Contract
5. Important features of contingent contract-
6. What are the advantages and disadvantages of a contingent contract?
7. Contingent Contract: Case Laws:
8. Conclusion

Contingent contracts Meaning

Section 31 of the Indian Contracts Act 1872 deals with contingent contracts which means the contingent contracts depend on the happening or not happening of an event. This contract depends on un-conditional events that are to be occurring in the future.

Illustration- X comes into a contract with Y to pay him Rs. 20,000 if he damages his car this can be termed as a contingent contract where the contract is based on a future event.

A contract of insurance is a type of contingent contract where the insurance is made based on an event that is to take place shortly. According to Section 32 of the Indian Contract Act 1872 contingent contract is defined as a contract that depends on an event that is to do or not to do something in the future.

In the case of Nandkishore Lalbagh v. New Era Fabrics Pvt. Ltd. & Ors.

• A contract was made between the seller and the buyer to sell land which is attached to a factory on the condition that the labour union permits the sale of land and on the second condition that the government authority allows selling the land.
• This was a contingent contract and later on, none of the criteria or conditions were fulfilled as the labour union and the government authority did not allow to sale of the land which was attached to the factory.

What is the Difference between a Contingent contract and a Wagering agreement?

Section 30 of the Indian Contract Act deals with the wagering agreement, according to this section a wagering agreement is void and no suit can be filed in the case of breach of a wagering agreement.

Section 31 of the Indian Contract Act 1872 deals with contingent contracts according to this section contingent contracts which mean contingent contracts depend on the happening or not happening of an event. This contract depends on un-conditional events that are to be occurring in the future.

Essential ingredients of a contingent contract

Contingent contacts are defined under section 31 of the Indian Contract Act 1872 and contingent contracts deal with the happening and non-happening of an event. Here are the essential ingredients to constitute a contingent contract.

1.The contract should be valid for doing or abstaining from doing something-

• The enforcement of a contingent contract depends on the happening or not happening of an event as given under Section 32 and Section 33 of The Indian Contract Act 1872. A contingent contract is only valid if it depends on the happening or non-happening of an event. The contract should be collateral to the occurrence or non-occurrence of the event.
• Illustration- X promises to pay Y Rs. 1 lacks on the condition that a ship returns to the shore in its original condition the way it left. And later if the ship got sunk in the ocean. In this condition, the contract will only be enforced on the sinking of the ship.

2.To constitute a contingent contract the performance of the contract must be conditional:

• Contingent contracts are made on an event which is conditional or in an event which is to be happening in the future. The contract is made between two parties on the occurrence and non-occurrence of an event which is to be happening or not happening in the future. Contingent contracts are always made on an unseen future or an event.

3.To constitute a contingent contract the condition specified in the contract must be collateral:

• Contingent contracts depend on the happening or non-happening of an event in the future. The event should be collateral in that of the contract and should exist independently.
• Illustration- X enters into a contract with Y to pay him an amount of money depending on the delivery of goods by the end of this month. In such cases, the contract is dependent on the happening or non-happening of an event and the delivery of the goods is collateral to the contract.

4.To constitute a contingent contract the event must not depend on the mere discretion of the promiser:

• The Last ingredient to constitute a contingent contract is that the event on which the contract is based should be dependent on the primosor to execute his promise. It should relate to an uncertain event in the future.
• Illustration- X promises to pay Y an amount of money if Y leaves for London tonight. This type of promise falls under a contingent contract where the event is going to take place in the future.

Rules Regarding Enforcement of Contingent Contract

Conditions under which a contingent contract can be enforced by the law are given under Sections 32 and 36 of the Indian Contract Act 1872. The conditions under which a contingent contract can be enforced are as follows-

1. Contingent contracts on the happening of an event

• Contingent contracts are based on doing something or not doing something and depend on an uncertain event the contingent contracts can only be enforced depending on the happening of an event shortly. And according to the Indian Contract Act 1872 an event which is impossible or unlawful to perform becomes void.
• Illustrations- X comes into a contract with Y to buy Y’s house on condition that if X survives Z. This type of contract cannot be enforced by law unless Z dies in the lifetime of X

2. Contingent contracts on the not happening of an event

• Contingent contracts depend on the happening or not happening of an event which is an uncertainty. In the case of a contingent contract if an event which is to take place in the future does not happen or that is impossible to perform then it cannot be enforceable by law.
• Illustrations-X comes into a contract with Y on the condition of returning a ship and if the ship sinks in the ocean then only the contingent contract can be enforced.

3. Contingent contract depending on the future conduct of a living person

• If the contingent contracts depend on the future of an event to be conducted by a living person and the time is unspecified the event will be considered to be impossible when such a person refuses to do the event then it will be a contingent event.
• Illustration- X enters into a contract with Y for a sum of money on the condition that Y marries Z. but Y marries A. Now the marriage of Y to A can be considered impossible even if it is possible that A may die and Y may marry Z afterwards.

4. Contingent contracts depending on the happening of an event on specified events within a fixed time

• If an event happens in a fixed time becomes void if the time which was fixed expires and such an event has not happened yet or before the time fixed such an event becomes impossible.
• Illustration-X promises to pay a certain amount to Y if a ship returns within a year. In such a case, the contract will be enforced if the ship returns within the stipulated time which is one year and will become void if the ship sinks.

5. Contingent contracts depending on the not happening of a specified event within a fixed period-

• Contingent contracts that depend on an uncertain future event do not happen within the time fixed then it will be enforced by law and when the fixed period specified in the contract expires and the event did not happen before the time fixed expires it becomes certain that such event will not happen.
• Illustration- X promises to Y to pay a certain amount of money if a ship does not return within a year. The contract can be enforced if the ship does not return at the time stipulated which is within a year or it sinks.

6. Contingent Contracts depending on an impossible event-

• If an event that is impossible or unlawful to perform happens then it is void, whether the impossibility of the event is known or not known to the parties who agree at the initial stage of the contract being made.
• Illustration-X agrees to pay B if two parallel lines meet. This is an impossible event and is void.

Important features of contingent contract-

A contingent contract is made on uncertain future events and is mostly used by insurance companies and insurance is made on an uncertain event which is to occur in the future. The important features of a contingent contract are given below-

• Contingent contracts are made on the happening or not-happening of an event which is to occur in the future.

• A contingent contract is only enforced depending on the occurrence or non-occurrence of a future event.

• When an event that is been mentioned in a contract becomes void a contingent contract also becomes void.

• Contingent contracts made solely on the not happening of an event shall only be enforced when the event becomes unlawful or impossible to perform.

• If a contingent contract is based on an event conducted by a living person then it will become void if the living person acts in such a way that the event becomes impossible to perform in the future.

What are the advantages and disadvantages of a contingent contract?

Contingent contract has its advantages and disadvantages depending on the use of it. A contingent contract is mostly used by insurance companies to make an insurance contract. The advantages and disadvantages of a contingent contract are given below-

Contingent Contract: Case Laws:

In the case of Gian Chand v. Gopala and Ors 1995

In the following case, there was a sale agreement between the two parties for land with the condition that the money paid would be returned if it was notified that the land was out for acquisition. The parties knew that the land was already under notification of acquisition and hence the sale agreement as mentioned in the contract was impossible to perform by the parties and the contract was held void by the court as per section 6 of the Land Acquisition Act.

In the case of Frost v. Knight (1872)

In the following case, the defendant made a promise to marry the plaintiff after the death of the plaintiff’s father and later in the lifetime of the plaintiff’s father the defendant married another woman, thus the promise made by the defendant to the plaintiff was broken.The court held that it becomes impossible for the defendant to marry the plaintiff as the defendant is already married now. And for the non-performance of the promise the plaintiff had all the rights to sue the defendant.

Conclusion

The meaning of Contract according to the Indian Contract Act is an agreement between two parties on acceptance of an offer from one party to the other. A contract is enforceable by law. The main ingredient of a contract is the mutual promise between two parties to perform an act as decided in the agreement. This article talks about the enforcement and the conditions for forming a contingent contract.