Contingent Contract

Contingent Contract
24 September 2020

Contingent Contract

The word ‘contingent’ means when an event or situation depends on some other event or fact. The ‘contingent contract’ means enforceability of that contract is directly depends upon happening or not happening of an occasion. The word was used to mean conditional in the Indian Contract Act, 1872. Uncertainty is an indication of the future.

Estimating the probabilities of an uncertainty becoming certain, calculating the results if the event doesn’t happen then measuring the potentiality to affect its consequences are all about contingent contracts. Parties may stipulate that the performance of obligations under a contract depends on a contingency, even though the contract is validly formed. The parties agreeing to the conditions agree that the rights are going to be enforced and therefore the obligations are going to be due on the happening of the contingency on the contracting of a valid contract.

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.

Section 31 of the ICA defines a contingent contract as "a contract to do or not to do something, if some event, collateral to such contract, does or does not happen". The use of the word 'collateral' to describe the event indicates that the contract is deemed to be valid when executed, however, its performance remains conditional upon the occurrence of such a specified event.

Essential elements of a Contingent Contract
  1. Performance of the Contract: The performance of the contract must be conditional i.e. condition for which the contract has been entered into must be a future event, and it should be uncertain.
  2. Contingency Relate to Collateral Matters: This highlights that the contingency has contemplated by the contract must be collateral to the contract. It means that a contract already arisen or a subsisting contract is there, but its performance cannot be demanded unless the contemplated event happens or does not happen.
  3. Will of the Party: The particular event so considered as for contingency must depend on the act of the party but it does not depend on the will of the party. A contract for sale of goods enjoin the condition that the goods would be inspected before despatch was held to be a firm contract. The import of materials agreeable to such a contract was valid.
  4. Uncertain Event: If the event is sure to happen, then the contract is due to be 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

  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.
  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.
  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 a 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.
  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.
  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.
  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.
Case Laws

HPA International v. Bhagwandas Fateh Chand Daswani and Ors.

The contract stipulated that the entire interest in the property of the vendor’s and reversionary’ property would be transferred, therefore, one single indivisible contract, subject to the Court’s sanction. Therefore it had been in the contemplation of parties that transfer of entire interest was conditional upon sanction of the Court been granted, hence, the requirement of the vendor to transfer his own title was also subject to the Court’s sanction, unless the agreement varied.

Rojasara Ramjibhai Dahyabhai v. Jani Narottamdas Lallubhai (Dead) by Lrs. & Anr. [1986 SCR (2) 447]

It was held that the contract was a contingent one and because the contingency failed, there was no contract which could be made the idea for a decree for performance.