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Contingent Contracts

Under section 31 of Indian Contract Act, 1872, Contingent contract is defined as 'contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Contingent Contracts in simple words means these are those contracts where a promise is conditional and based on some happening and non-happening of some uncertain future event, the contract shall perform. The contracts of insurance, guarantee, and insurance are some examples of contingent contracts.

For example, Raj contracts to pay Shyam Rs 50,000 if Shyam's shop is burnt. This is contingent.

Difference between Contingent Contract and Wagering Agreement

Based on distribution Contingent contract Wagering agreement
Void/Valid It is a valid contract. It is a void agreement.
Reciprocal promise It may or may not contain reciprocal promises. It contains reciprocal promises.
Main or collateral future events A future event is collateral in the case of a contingent contract. A future event is essential in case of a wagering agreement.
Nature Contingent may not be of a wagering nature. Wagering agreement is always of contingent nature.
Interest of parties Its parties may have other interests as well. It is not a game and winning or losing doesn't matter. Its parties have no other interest in the subject matter of the agreement. It is a game-winning or losing that matter alone.

Essentials of contingent contract

There must be a valid contract to do or abstain from doing anything- For this essential the condition 1 and condition 2 talks about the implementation of the contingent contract on the happening or not happening of the events or works that needs to be done respectively. The contract will be valid only if it talks about performing or not performing an obligation.

Performance of the contract must be conditional:

The conditions or the reasons for which the contract that has been entered into must be a future event, and it should be uncertain. If suddenly the performance of the contract is dependent on an event, which may be a future event, but certain and is sure to happen, and then it'll not be considered as a contingent contract.
  • The said event must be collateral to such contract:
    The event for or on whose happening or due to non-happening of the event for which the performance of such contract is dependent, must not be a part of the consideration of the given contract. The happening or non-happening of the event should be as a security to the contract and should be existing independently.
     
  • The event should not be at the discretion of the promisor:
    The contract must not be dependent on the promisor and should be fully or totally futuristic and can be an uncertain event.


Enforcement of Contingent Contracts

Section 32 to 36 of the Indian Contract Act, 1872, lists certain rules which are related to the enforcement of contingent contracts.

The sections are as follows:
1st condition
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 law unless and until that event has happened. If the event becomes impossible, such contracts become void.'

A contingent contract is to do or abstain from doing anything if an uncertain future event happens. The contract, however, cannot be enforced by law until the event takes place. If the happening of an event becomes impossible then such contracts become void.

For example, Sagar makes a contract with Raman to pay Rs 30,000 if Raman marries Urmila. Unfortunately, Urmila dies in a car accident. Since the happening of the event becomes totally impossible, thus the contract becomes void.

Case- Nandkishore Lalbagh vs New Era Fabrics Pvt.Ltd.& Ors . (2015) 9 SCC 755 , AIR 2015 SC 3796 , a contract for the sale of land with a factory was to be performed only if the labor unions agreed to the sale and further if the change of land use was approved by the appropriate authority. None of these contingencies could be fulfilled because neither there was approval by the labor union nor by the relevant authority. The contract was accordingly not allowed to be enforced against the seller.

2nd condition
Section - 33 Enforcement of contracts contingent on an event not happening.
'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.'

A contingent contract is to do or abstain from doing anything if an uncertain future event does not happen. The contract, however, can be enforced by law until the event becomes impossible. If the event takes place, then the contingent contract is void.

Prakash agrees to pay Prasun a sum of money if a certain ship names Georgia does not return. The ship is sunk. The contract can be enforced when the ship sinks. On the other hand, if the ship returns, then the contract is void.

Case:
Gian Chand Vs Gopala and Ors 1995 SCC (2) 528, JT 1995 (2) 513, in this case, there was an agreement to sell the land that provided that the earnest money would be returned in case the land is notified for acquisition. Unknown to the parties, the land was already under notification. The contract became impossible for performance and therefore void on declaration under section 6 of the Land Acquisition Act.

3rd condition
Section- 34 When an event on which the contract is contingent is to be deemed impossible, if it is the future conduct of a living person.

'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 it impossible that he should so act within any definite time, or otherwise than under further contingencies.'

In this section if there is a future event that tells about a contingent contract that is made in such a way that the person will do an act that will be at an unspecified time than the event will be considered to become impossible and that he should do the act within a specified time or will be under further contingencies.

Example: Amit agreed to pay Saranya a sum of money if Saranya marries Chandan. But Chandan married Daina. The marriage of Saranya to Chandan must be considered impossible, although Daina may die, and Chandan afterward may marry Saranya.


Case:
Frost Vs Knight (1872) 7 Ex. 111 : 41 L.J. Ex. 78 : 26 L.T. 77
the defendant promised to marry the plaintiff on the death of his father. While the father was still alive, he married another woman. it was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for the breach of contract.

4th condition
Section- 35
  1. When a contract become void which are contingent on happening of specified event within fixed time.
    'Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time becomes 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 is to do or abstain from doing anything if a future uncertain event happens within a fixed time. If the event does not takes place and the time-lapses and if before the fixed time, the happening of the event becomes impossible, then in that case such a contract becomes void.
    For example, Geeta promises Sanjay to pay a sum of money if a ship named California returns before 1st April 2018. The contract may be enforced if the ship returns within the fixed time. On the other hand, it becomes void if the ship sinks.
     
  2. When contracts may be enforced, which are contingent on specified event not happening within fixed time.
    '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.'

    A contingent contract is to do or abstain from doing anything if a future uncertain event does not happen within a fixed time. In such a case, the contract may be enforced by law when the fixed time has expired and the event has not happened before the expiry of the fixed time. Also, if it becomes certain that such an event will not happen before the expiry of the fixed time, then it can be enforced by law.

    For example, Geeta promises to pay a sum of money to Sanjay if a ship named California does not return before 31st March 2018. The contract may be enforced if the ship does not return before 31st March 2018. Also, if the ship is burnt before the given time, then the contract can be enforced by law since the return of the ship becomes impossible.

5th condition
Section-36 Agreement contingent on impossible events void.
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.

A contingent agreement to do or not do anything is based on an impossible event, then in such a case, the agreement becomes void. This is regardless to the fact that whether the parties are aware of the impossibility of the event or not at the time when the agreement was made.

For example 1. Ram agrees to pay Sita Rs 5000 if the Sun rises in the west on Wednesday. This agreement is void since the happening of the event is impossible.

Atish agreed to pay an amount of Rs300 if clocks move anticlockwise after putting in a new battery. This agreement is void as this event of anticlockwise of a clock is impossible.

Real-life Use.
Contingent contracts are used in our daily life. Mainly for businesses, it is being used in negotiations where all goodwill and trust that is created can disagree in front of the negotiating opposite party about future events that need to work, in that case, a contingent contract is of great use.

In a life insurance contract, the insurer has to pay a certain amount if suddenly the insured person dies due to certain conditions due to which the insurer will not be called for action of taking the amount until the death which is an event that has happened so in this case contingent contract is required.

Advantages
A Contingent contract has a lot of advantage which specifically negotiator can also use:
  • It helps to eliminate the need to come into agreements as it will help the parties to bet on predictions which keeps differences among the parties but this is only helpful in case of negotiations.
  • It can limit the losses that could happen if the contract failed in fulfilling the conditions.
  • It does not offer the scope of litigation by reducing the conflicts which are involved in it as these events are the future of what would happen.

Conclusion
A Contingent contract is used in daily life and it tells about those contracts where a promise is conditional and on the happening and non-happening of some uncertain future event the contract shall perform. So it helps to perform actions that are required in insurance or guarantee or negotiation. But this type of contract cannot be used in normal contracts.

Written By:
  1. Shambo Dutta, 1st Year, KIIT Law School
  2. Shreyashee Mitra, 1st year, KIIT Law School

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