CONTINGENT CONTRACTS

By- (Y)^2
 INTRODUCTION
 The word contingent 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.

 The ‘contingent contract’ means enforceability of

that contract directly depends upon happening or

not happening of an event.
 CONTINGENT CONTRACT

Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent
Contract’ as follows: ‘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 simple words, contingent contracts, are the ones where the promisor
perform his obligation only when certain conditions are met. The contracts of
insurance, indemnity, and guarantee are some examples of contingent
contracts.
 Illustration:- A contracts to pay to B Rs. 20,000 if B’s house is burnt.

Chandulal Harjivandas v. CIT– In this case, it was held that all contracts of
insurance and indemnity are contingent.
 How is it different from wagering
agreement?

A wagering agreement is absolutely void (S.30) while on the other hand
contingent contract is a valid contract.

In a contingent contract, the future uncertain event is merely collateral
whereas in a wagering agreement the uncertain event is a sole determining
factor of the agreement.

In a wager, the parties are not interested in the occurrence of the event
except for winning or losing the best amount while in a contingent contract the
parties have a real interest in occurrence or non-occurrence of the event.

All wager contracts are contingent contracts, but all contingent contracts are
not by way of the wager.
 ESSENTIALS OF CONTINGENT
CONTRACT
1.There must be a valid contract to do or abstain from doing something:

Section 32 and 33 of the Act talks about enforcement of the contingent
contract on the happening or not happening of the events respectively. The
contract will be valid only if it is about performing or not performing an
obligation.

Illustration 1: X makes a contract with Y to buy Y’s dog if X survives Z. This
contract cannot be enforced by law unless and until Z dies in X’s lifetime.

Illustration 2: X agrees to pay Y a sum of money if a certain ship does not
return.The ship is sunk.The contract can be enforced when the ship sinks.
2. Performance of the contract must be conditional:
• The condition 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 a future
event, but certain and sure to happen, then it’ll not
be considered as a contingent contract.
3. The said event must be collateral to such contract:
• The event on whose happening or non-happening of the event on which
the performance of the contract is dependent should not be a part of the
consideration of the contract. The happening or non-happening of the
event should be collateral to the contract and should exist independently.
• Illustration: X enters into a contract with Y and promises to deliver 10
books to him. Y promises to pay Rs. 2000 upon delivery. This is not a
contingent contract since Y’s obligation depend on the event which is a
part of the contract(delivery of 10 Books) and not a collateral event.
4. The event should not be at the discretion of the promisor:
• The event so considered as for contingency should not at all
to be dependent on the promisor. It should be totally a
futuristic and uncertain event.
• Illustration: X promises to pay Y, Rs. 10,000 if Y leaves
Delhi for London on 31st March 2019. This is a contingent
contract. Going to London can be withinY’s will but is not
merely his will.
 ENFORCEMENT OF
CONTINGENT CONTRACTS
Condition #1- enforcement of contract contingent on the happening of an
event:

The contingent contracts to do or abstain from doing something if an
uncertain future event happens. However, the contract cannot be
enforced by law unless the event takes place. If the event becomes
impossible, such contracts become void.[Section 32]

Illustration: X promises to pay Y, Rs. 100,000 if he marries Z, the prettiest
girl in the neighborhood This is a contingent contract. Unfortunately, Z
dies in a car accident. Since the happening of the event no longer
possible, the contract is void.
Condition #2- enforcement of contract contingent on an event not
happening:

The contingent contracts to do or abstain from doing something if an
uncertain future event does not happen can be enforced when the
happening of that event becomes impossible. If the event takes place,
then the contingent contract is void.[Section 33]

Illustration: X promises to pay Y a sum of money if a certain ship 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
Condition #3- when an event on which contract is contingent to be
deemed impossible if it is the future conduct of a living person:
 If a contract contingent upon how a person will act at a future time, the
event shall be considered impossible when such person does anything
which makes it impossible for the event to happen.[Section 34]

Illustration: X agrees to pay Y, Rs. 100,000 if Y marries Z. However, Z
marries A. The marriage of Y to Z must now be considered impossible,
although it is possible that A may die and that Z afterward marry Y.
Condition #4- contracts contingent on an event happening within the fixed
time:

Contingent contracts to do or not to do anything 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.[Section 35(para 1)]

Illustration: X promises to pay Y a sum of money if a certain ship returns
before 1st April 2019. The contracts may be enforced if the ship returns
within the fixed time. On the other hand, becomes void if the ship sinks.
Condition #5- contracts contingent on an event not happening within the fixed time:
 Contingent contract to do or not to do anything if an uncertain event does not
happen within a fixed time may be enforced by law when the fixed time 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.[Section 35(para 2)]
 Illustration: X promises to pay Y a sum of money if a certain ship does not return
before 31st March 2019. The contract may be enforced if the ship does not return
before 31st March 2019. Also, if the ship burnt before the given time, the contract
is enforced by law since the return is impossible.
Condition #6- contract contingent of impossible event void:

If an agreement to do or not to do is based on the
impossible event, then such agreement is void, whether
the impossibility of the event is known or not to the parties
to the agreement at the time when it is made.[Section 36]
 Illustration: X promises to pay Y, Rs 500 if two straight
lines should enclose a space. The agreement is void.