The provisions related to Contingent Contract are laid down in the Indian Contract Act, 1872. This act deals with the general principles of Contract Law in India. Let us first understand the meaning of a Contract.
Contracts play a pivotal role in the day-to-day life of every person. Many a time, people enter into contracts without even realizing it. Thus, when one buys any product, say a book, there is a contract. A Contract is defined as an agreement creating obligations between the parties, thus being enforceable by law. But what is a Contingent Contract?
A contract is called contingent when the performance of the contract depends upon the happening or non-happening of some contingency, i.e. some uncertain event. In simple words, a Contingent Contract is a conditional contract and such contracts are valid contracts.
DEFINITION OF CONTINGENT CONTRACT
The definition of Contingent Contract is given under Section 31 of the Indian Contract Act which reads as under:
“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.”
- A comes to an agreement to pay B Rs.10000 if his house is burnt. This is a contingent contract.
- A agrees to pay Rs.10000 to B if he marries C. This is a contingent contract.
Contracts of insurance are contingent contracts but wagering agreements are not contingent contracts.
The contract of insurance, indemnity and guarantee are examples of contingent contracts.
The contingent contract is not dependent on the will and pleasure of the parties for its performance, like in an ordinary contract. In contingent contracts, no rights and obligations between the parties are created at the time of formation of the contract, but the creation of such rights and obligations is postponed until the happening or non-happening of a particular event. Therefore, the contract becomes enforceable only at some future date when the event has happened or not happened. In the above illustration in which A agrees to pay B Rs.10000 if his house is burnt, the liability of A to pay the amount to B is not created until B’s house is burnt. Also, this contract can be enforced by B only when his house is burnt and not otherwise.
In this example, the burning of B’s house is an event which is not depending upon the will and pleasure of A or B. Such an event is called a collateral event because no action on the part of any contracting party is required for the occurrence of such an event. Moreover, such event must be uncertain. If the event is certain i.e. bound to happen, then the contract is not a contingent contract. The event upon which the performance of the contract depends may also be an ‘act of party’. Thus, a contract which is dependent upon some act of the party is also a contingent contract.
ESSENTIALS OF CONTINGENT CONTRACT
- A contract to do or not to do something needs to be there.
- The contract must depend upon the occurrence or non-occurence of a future uncertain event.
- The event must be collateral or incidental to the contract.
A Seller agrees to deliver the goods to the buyer after a month provided the buyer makes payment within five days. This is an absolute contract and not contingent contract because the event of making payment by the buyer is the essential and integral part of the contract and therefore, not collateral to the contract.
LEGAL RULES REGARDING CONTINGENT CONTRAC
- Enforcement of Contingent Contract based on occurrence of an event (Section 32)
When a Contingent Contract is based on the occurrence of a future event that is uncertain and such an event occurs, only then the contract can be enforced by law and not before that. If such a future event becomes impossible, the contract becomes void.
- A makes a contract with B to buy his house if A survives more than C. Unless and until C dies in A’s lifetime, this contract cannot be enforced by law.
- A comes to an agreement to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.
- Enforcement of Contingent Contracts based on nonoccurrence of an event (Section 33)
If a future event that is uncertain does not take place and the occurrence of such an event is deemed impossible, only then the Contingent Contract can be enforced by law and not before that.
A agrees to pay B a sum of money if a certain plane does not return. The plane crashes. The contract can be enforced when the plane has crashed.
- When an event on which contract is contingent to be deemed impossible if it is the future conduct of a living person (Section 34)
When a contract is contingent on a future event that depends on the actions of a person at any unspecific period of time and such person’s actions render the event impossible at any future period of time, such event will be considered impossible to take place unless something in the future renders the event to be possible once again.
X agrees to pay Y Rs.10000 if Y marries Z. Y marries A. The marriage of Y and Z is now not possible unless A is to die somehow, and he later marries Z.
- When Contingent Contracts which are based on the occurrence of a specific event within a fixed period of time become void (Section 35)
Contracts that are contingent on whether a specific event takes place within a fixed period of time become void if such an event does not take place within the fixed period of time or if the given period expires. Such contracts are enforceable only on the expiration of the given time period or when it is certain that such an event will not take place.
- A agrees to pay B a sum of money if the construction of a certain skyscraper is completed within a year. The contract may be enforced if the construction is completed within the year, and becomes void if it is not completed within the year.
- A agrees to pay B a sum of money if the construction of a certain skyscraper is not completed within a year. The contract may be enforced if the construction is not completed within the year.
- Contingent Contracts based on impossible events void (Section 36)
Irrespective of whether the impossibility of an event is known or not to the parties of the Contingent agreement, if such an impossible event takes place then the agreement will be considered void.
- A agrees to pay B Rs.1000 if the earth was to be destroyed tomorrow. Had the earth been actually destroyed, both A & B would be dead. Thus, it is a void contract.
- A agrees to pay B Rs.1000 if two parallel lines were to intersect each other. As two parallel lines never intersect one another, the agreement is void.
Secretary of State for India vs. A. J. Arathoon, (1882)
There was a contract between the parties to supply timber to a Government department. The timber being supplied was to be inspected by the superintendent of the factory. However, he did not approve the timber which was supplied. The supplier sued the Government for breach of contract on the ground that timber was corresponding with its description under the contract and hence it should not be disapproved. Thus, the Court ruled in favor of the supplier.
Frost vs. Knight, (1872)
The Defendant and Plaintiff entered into a marriage contract. However, the marriage was postponed due to the death of the defendant’s father. Later on, the defendant married anotherwoman during the lifetime of his father. The plaintiff filed a suit against the defendant for damagesfor breach of contract. An important issue arose before the Court whether there is abreach of contingent contract or not. It was held that the marriage by defendant during lifetime of his father amounts to a breach of contract due to which the performance of the contract becomes impossible. The decision was passed in favor of the plaintiff and damages were awarded for breach of contract.
In a Contingent Contract, no rights and obligations between the parties are created at the time of formation of the contract, but the creation of such rights and obligations is postponed until the happening or non-happening of a particular event. Therefore, the contract becomes enforceable only at some future date when the event has happened or not happened.
Contract contingent upon the happening of an event can be enforced after that event occurs. The parties are under no obligation till such event occurs, though as mentioned earlier, a term may be implied requiring one party to make reasonable efforts to bring about the event. The contract can be enforced only when the event occurs and if such event becomes impossible to take place, then the contract becomes void.