Contingent Contracts

There are different types of contracts- depending on the validity, performance, etc. One such set is absolute and contingent contracts depending upon the happening or non-happening of a certain event in the future.  

Contingent Contracts

An absolute contract is one where the promisor performs the contract without any condition. Contingent contracts, on the other hand, are the ones where the promisor performs his obligation only when certain conditions are met. The contracts of insurance, indemnity or guarantee one thing in common – they create an obligation on the promisor if an event which is collateral to the contract does or does not happen. For example, in a life insurance contract, the insurer pays a certain amount if the insured dies within the time period of the insurance policy. The insurer is not called into action until the event of the death of the insured happens. This is a contingent contract.

Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as follows: “If two or more parties enter into a contract to do or not do something, if an event which is collateral to the contract does or does not happen, then it is a contingent contract.”

Essentials of Contingent Contracts

1. Depends 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 said events can be precedent or subsequent to the contract.

2. The event is collateral to the contract:-

It is important that the event is not a part of the contract. It cannot be the performance promised or consideration for a promise.

3. The event should not be a mere will of the promisor:-

The event cannot be a wish of the promisor.

4. The event should be uncertain:-

If the event is sure to happen, then the contract is due to be performed. This is not a contingent contract. The event should be uncertain.

Enforcement of Contingent Contracts

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

Rule 1 – Contracts Contingent on the happening of an Event

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 do something if the event happens. However, the contract cannot be enforced by law unless the event takes place. If the happening of the event becomes impossible, then the contingent contract is void. This rule is specified in Section 32 of the Indian Contract Act, 1872.

Eg- Peter promises to pay John Rs 50,000 if he can marry Julia, the prettiest girl in the neighborhood. This is a contingent contract. Unfortunately, Julia dies in a car accident. Since the happening of the event is no longer possible, the contract is void.

Rule 2 – Contracts Contingent on an Event not happening

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. This rule is specified in Section 33 of the Indian Contract Act, 1872.

Rule 3 – Contracts contingent on the conduct of a living person who does something to make the event or conduct as impossible of happening

Section 34 of the Indian Contract Act, 1872 states that if a contract is contingent upon how a person will act at a future time, the event is considered impossible when the person does anything which makes it impossible for the event to happen.

Rule 4 – Contracts Contingent on an Event happening within a Specific Time

There can be a contingent contract 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 time fixed, the happening of the event becomes impossible. This rule is specified in Section 35 of the Indian Contract Act, 1872.

Rule 5 – Contracts Contingent on an Event not happening within a Specific Time

Contingent contracts might be based on the non-happening of an uncertain future event within a fixed time. In such cases, the promisor is liable to do or not do something if the event does not happen within the said time. The contract can be enforced by law if the fixed time has expired and the event has not happened before the expiry of the time. Also, if it becomes certain that the event will not happen before the time has expired, then it can be enforced by law. This rule is specified in Section 35 of the Indian Contract Act, 1872.

Rule 6 – Contracts Contingent on an Impossible Event

If a contingent contract is based on the happening or non-happening of an impossible event, then such a contract is void. This is regardless of the fact if the parties to the contract are aware of the impossibility or not. This rule is specified in Section 36 of the Indian Contract Act, 1872.

Author: Shubham siwach

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