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Indian Contract Act Basics: What are Contingent Contracts?

by Srishti Jha

INTRODUCTION

The word contingent implies the dependency of an event on another event or situation in the future in order to happen. It means when an event or situation is contingent, i.e. it depends on some other event or fact. For example, making money is contingent on finding a good-paying job. So basically, the enforceability of the contract directly depends upon the happening or not happening of an event. Section 31 of the Indian Contract Act 1872 defines the term as

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 other words, these are the contracts where the promisor performs his obligation only when certain future event takes place or conditions are met. Contracts of insurance, indemnity, and guarantee are some examples of the same.

Illustration

A agrees to pay B an amount of Rs. 5 lakhs if B’s house is burnt. This is a contingent contract. Here, the burning of the house is neither a performance promised as a part of the contract nor a consideration. A’s liability arises only when the collateral event occurs.

ESSENTIALS OF CONTINGENT CONTRACTS

Depending on happening or non-happening of a certain event

The contract is contingent on the happening or the non-happening of a certain event. The contract will be valid only if it is about performing or not performing an obligation.

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Illustration

A promises to pay B Rs. 5000 if the train reaches the railway station on time. This is a contingent event.

Performance of the contract must be conditional

The situation for which the contract has been entered into must be a future event, and it should be uncertain. If the performance of the contract is dependent on an event, which is although in the future, but certain top happens, then it’ll not be considered as a contingent contract.

The event must be collateral to the contract.

It is important that the event on whose happening or non-happening the performance of the contract is dependent should not be a part of the consideration of the contract. It should exist independently.

Illustration

A enters into a contract with B and promises to deliver 2 refrigerators to him. B promises to pay him Rs, 1 Lakh upon delivery. This is not a contingent contract since B’s obligation depends on the event which is a part of the contract and not a collateral event.

The event should not be a mere will of the promisor

The event cannot be wish of the promisor and should be totally a futuristic and uncertain event.

Illustration

A promises to pay b Rs. 50,000 if he leaves Delhi for Dubai on December 30th, 2019. This is a contingent contract. Going to Dubai can be within B’s will but is not merely his will.

ENFORCEMENT OF CONTINGENT CONTRACTS

Sections 32-36 of the Indian Contract Act, 1872, list certain conditions for the enforcement of a contingent contract.

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CONDITION 1

Section 32: Enforcement of contracts contingent on an event happening.

“Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by laws unless and until that even has happened. If the event becomes impossible, such contracts become void.”

A contingent contract might be based on the happening of an uncertain future event. In such cases, the promisor is liable to do or not to do something if the event happens. However, the contract cannot be enforced by the law, unless the event takes place.

If the happening of the event becomes impossible, then the contingent contract is void.

Illustration

A promises to pay B Rs. 50,000 if he can marry C. This is a contingent contract. However, C dies in a car accident. Since the event can no longer take place, the contract is void.

CONDITION 2

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

“Contingent contracts to do or not to do anything if an uncertain future event does or does not happen, can be enforced when the happening of that event becomes impossible, and not before.”

In other words, a contingent contract might be based on the non-happening of an uncertain future event. In such cases, the promisor is liable to do or not do something if the event does not happen. However, the contract cannot be enforced by law unless happening of the event becomes impossible. If the event takes place, then the contingent contract is void.

Illustration

X promises to pay Y Rs. 20,000 if the ship which leaves on a dangerous mission does not return. This is a contingent contract. This contract is enforceable by law if the ship sinks making its return impossible. On the other hand, if the ship returns, then the contract is void.

CONDITION 3

Section 34: When event on which contract is contingent to be deemed impossible if it is the future conduct of a living person.

“If the future event on which the contract is 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 that under further contingencies.”

It states that if a contract is contingent upon how a person will behave at a future time, then the event is considered impossible when the person does anything which makes it impossible for the event to happen.

Illustration

A promises to pay B Rs. 10,000 if he marries C. However, C marries D and this act thus renders the event of B marrying C impossible.

CONDITION 4

Section 35: Contracts contingent on an event happening within a specific time

“Contingent contract 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.”

A contingent contract can take place wherein a party promises to do or not do something if a future 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 fixed time, the happening of the event becomes impossible.

Illustration

A promises to pay B a sum of money if a certain train returns within 2 days. The contract may be enforced if the train returns within the year; and become void if the train is burnt or meets with an accident within the year.

CONDITION 5

Section 36: Agreement contingent on impossible event void.

“Contingent contracts 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.”

If a contingent contract is based on the happening or non-happening of an impossible event, then such a contract is void.

Illustration

A agrees to pay B Rs. 10,000 if sun rises from the west. The agreement is void.

DIFFERENCE BETWEEN WAGER AGREEMENT AND CONTINGENT CONTRACT:

Contingent ContractsWagering Agreements
A contract to do or not so something on the basis of the happening or non-happening of an event.A Wagering Agreement is one under which two individuals professing to hold opposite opinions concerning the issue of an unknown event mutually decided on basis of the determination of the event that a sum of money is won from the other, neither of the contracting parties having any other interests in the subject matter.
It is recognized as a valid form of contract.A wagering agreement is void in nature.
The future event is collateral.The main factor is the future event.
The doctrine of mutual loss and gain is not applicable in these types of contracts.The loss and gain factor play a very important role in a wagering agreement.
Reciprocal promises may or may not be there.A wagering agreement is premised on reciprocal promises.
Example : M enters into a contract with N to pay her Rs. 10,00,000/- if N’s car is destroyed.Example : ‘X’ and ‘Y’ enter into a bet of Rs. 10,000/- over which team would win in the basketball tournament. In this agreement, X cannot sue Y for the amount since it is a wagering agreement and is void.

CASE LAWS

Rojasara Ramjibhai Dahyabhai v. Jani Narottamdas Lallubhai[1]- In this case, it was held that the contract between the parties was contingent in nature and due to the failure of the contingency, a decree of performance could not be made as there was no contract for the same.

National Agricultural Cooperative Marketing Federation of India (NAFED) v. Alimenta SA[2] – The contention of the impossibility of performance with reference to Section 32 of the Indian Contract Act, 1872 which deals with enforcement of contracts contingent on the happening of an event, was deliberated upon by the Supreme Court.


Attempt this quiz to test your knowledge on the subject!

Results

#1. A and B entered into a contract, which stated that B would give his car to A if there was an earthquake the next day. Which type of contract is entered into here?

The correct answer is a. Wagering agreement

#2. X agrees to pay Rs. 5000 to Y if Y's car is burnt. It is

The correct answer is a. Void

#3. Which of the following is not an essential requirement of a valid contingent contract:

The correct answer is c. The event must form the part of the contract

#4. A Contingent Contract depending on the happening of an impossible event is:

The correct answer is b. Void

finish

[1] 1986 SCR (2) 447

[2] https://indiankanoon.org/doc/155215460/.

This article has been written by:

Srishti Jha - Content Writer at Kanooniyat

Connect with Srishti on Linkedin: Click here

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