Contingent Contract

 

INTRODUCTION

The word contingent ordinarily means ‘subject to chance’. In the Indian Contract Act 1872, this word has been used to mean conditional, just the way we use it generally. Uncertainty is the hall-mark of the future. Section 31 to 36 of The Indian Contract Act 1872 deal with this type of contract. Section 31 of the Act defines ‘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. When the contract is dependent or conditional upon the happening or non- happening of certain future event, the contract is contingent contract, e.g.

A contract to pay B Rs 10,000 if B’s horse is burnt this is a contingent contract. The payment of the amount is contingent on the happening of a collateral event i.e. burning of the house. All contracts of insurance or indemnity aim at payment of money only after a certain event happens, or the loss is caused, and, therefore, they are contingent contracts. A wagering agreement is also a contingent contract, but, has been specifically declared to be void by Section 30.

A distinction is to be drawn between a contracts under which a present obligation is created but performance is postponed 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 complied with or some contingency arising in future.

In Harbaksh Singh Gill vs. Ram Ratan A.I.R 1988 P & H60; the vendor agreed to partition of the property and separation of his share. The vendor understood to get his share separated but failed to get that done. It was held that the contract was not contingent one and the same was therefore, not frustrated by the vendor’s own wrong or failure to get his share separated. The vendee was held entitled to obtain an injunction restraining the vendor from transferring the property to somebody else.

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

ESSENTIALS OF CONTINGENT CONTRACT

For a contract to be a contingent contract, certain essential elements have to be there. These elements form a contingent contract and without them, a contract will not be contingent. These are the following essentials.

  • There Must Be A Valid Contract To Do or Not To Do Something

Section 32 and 33 of The Contract Act, 1872 refer to the enforcements of contracts on an event happening and on an event not happening respectively. A contingent contract will be valid only if it is a contract to do or not to something. For instance if A contracts with B that he will pay a sum of 20,000 to B if gets married after the age of 21 is a valid contract. In Northern India Iron andSteel Co Ltd vs. The State of Haryana and another, the court held that Section 31 of the Act has no applicability in that case since there was no event.

  • The Performance Of The Contract Must Be Conditional

The event should be some future, uncertain event. If the performance of obligation is dependent on a future event which has to occur, the contract will not be a contingent contract. Mere postponement of the time of performance will not make the contract contingent as at some future time. The event has to be futuristic and uncertain. An event becomes uncertain only if its occurrence is not in the hands of any individual and the time is in future. It should be totally unpredictable for anyone.

  • The said event must be collateral to such contract.

The event on the happening or non- happening of which, the performance of the contract is dependent, must not form a part of the consideration of the contract.

  • The event should not be at the discretion of the promisor

The event so considered as for contingency should not at all be dependent on the promisor. It should not at all be dependent on the promisor. It should be totally dependent on future and should be uncertain. In the case of Firm of N.P.O Ballayya vs. K.V Srinivasayya Setty & Sons a person agreed with his agent to pay him the expenses of costing, taxes and others if he succeeded in litigation. In this, the event was not at all at the discretion of the promisor. He won the case in subject and was thus held liable to pay the agent. The promisor should have no capacity to guide the event which makes the contract a contingent contract.

A contract which fulfills the above mentioned essentials can be deemed to be a valid contract.

ENFORCEMENT OF CONTINGENT CONTRACT

The following are the rules governing the enforcement of the various kinds of contingent contract.

  1. Contracts contingent on an event happening

Section 32 states Contingent contract to do or not to do anything of an uncertain future event happens cannot be enforced by law unless and until that event has happened.

If the event becomes impossible, such contracts become void

For example: A makes a contract with B to buy B’s horse if A survives C. This contract cannot be enforced by law unless and until C dies in A’s life-time

  1. Contract contingent on the event not happening.

Section 33 states a “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 example: A agrees to pay B sum of money if a certain ship does not return. This ship is sunk. The contract can be enforced when the ship sinks.

  1. Contract contingent on the future conduct of a living person.

Section 34 states, “if the future event on which a 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 impossible that he should so act within any definite time or otherwise than under future contingencies”. It is a kind of deeming provision. Law deems impossibility.

For example: A agrees to pay B a sum of money 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 C may afterwards marry B.

  1. Contracts contingent on happening of specified event within fixed time.

Section 35 states “ 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.

For example: A promises to pay B 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.

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

Second part of Section 35 states contingent contracts to do or not to do anything, if a specified uncertain 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.

For example: A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the sip does not return within the year or is burnt within the year.

  1. Agreement contingent on impossible events.

Section 36 states “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.

For example: A agrees to pay B 1000 rupees if two straight lines should enclose a space. This agreement is void.

A agrees to pay B, 1000 rupeesif B will marry A’s daughter C. C was dead at the time of the agreement. Thus, this agreement is void.

 

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