CONTINGENT CONTRACT

Sec 1 to 36 of the Indian Contract Act 1872 

CONTENTS• What is a Contingent Contract?

• Essential Characteristics of Contingent Contract

• Rules Regarding Contingent Contract

• Difference Between wagering and Contingent Agreement

WHAT IS A CONTINGENT CONTRACT?

BASING ON THE PRESENCE AND ABSENCE OF CONDITIONS, CONTRACTS CAN BE TWO TYPES

• In case where there is condition, then such contract is called Contingent Contract.

• Contract means Conditional Contract. When imposed and condition is fulfilled, the Contingent Contract becomes valid and then parties have to perform their obligations.

• If imposed and Condition is not fulfilled, the Contingent Contract become Void and then it need not be performed. So Contingent Contract is to be performed under some circumstances only.

ABSOLUTE CONTRACT CONTINGENT CONTRACT

• In case where there is no condition, it is called Absolute Contract.

• As there is no condition, absolute contract is to be performed under all circumstances.

EXAMPLEThere is a Contract between A and B according to which A has to sell his goods which are in voyage, to B if the ship reaches the harbor safely.

Here condition can be seen and it is Contingent Contract. All indemnity contracts, guarantee contracts and insurance contracts are Contingent Contract

DEFINATION BY SECTION 31Contingent Contract is a contract in which a promise is conditional and the contract shall be perform only on the happening or not happening of some future uncertain event.

Section 31 of the Contract Act defines a contingent contracts as “ A contract to do or not to do something, if some event, collateral to such contract does or does not happen.”

Eg : A contracts to pay B Rs.10,000 if B’s house is burnt. This is a contingent contract.

ESSENTIAL CHARACTERISTICS• There should be existence of a contingency; happening

or non-happening of some event in future.

• Contingency must be uncertain.

• The event must be collateral, incidental to the contract.

RULES REGARDING CONTINGENT CONTRACT

Rule 1: Contracts Contingent on the Happening of an Event

• Section 32 provides that contingent contracts to do or not to do anything if any 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• Thus, Promisor will not be liable to perform the promise

until the certain event has happened

Examples• Raj makes a contract with Hari to buy to buy hari’s house if Shyam

dies before Raj. This contract cannot be enforced till the death of Shyam

• Mohit makes a contract with Shiv to sell a horse to shiv at a specified price, if ajay, to whom the horse has been offered, refuses to buy him. The Contract cannot be enforced by law unless and until ajay refuses to buy the horse

• Ravi contracts to pay nitin a sum of money when nitin marries anita. Anita dies without being married to nitin. The contract becomes void

Rule 2 : Contract Dependent on the non-happening of an Event

• Section 33 provides contingent contracts to do or not to do anything if any uncertain future event does not happen can be enforced when the happening of the event becomes impossible and not before

• Contact can be enforced only when happening of the event becomes impossible

Examples

• Rohit agrees to pay Nikhil a sum of money if a certain ship does not return. The ship is sunk The contract can only be enforced when the ship sinks and not before

Rule 3: Contract Contingent upon the future conduct of a living person

• According to section 34, if the future contingent event consists of how a person will act at an unspecified time, that event shall be considered to have become impossible if such person does anything which renders it impossible that he should so act within any definite time or otherwise than under further contingencies

• The Contract Becomes Void when such person does anything to make the event impossible

Examples• Mahesh agrees to pay sachin a sum of money if Sachin

marries neha. Neha marries prasoon. The marriage of sachin to neha must now be considered impossible although it is possible that prasoon may die and neha may afterwards marry sachin.

Rule-4:• Section 35-Contingent contract to do or not to do

anything, if a specified uncertain event does not happen within a fixed time, may be enforced if the event does not happen or its happening become impossible before the expiry of that time.• Manish will pay aman Rs 4000 if a certain ship does not

return within a year. The contract may be enforced if the ship does not returns within a year or if the ship is burnt within the year.

• Section 35-Contingent contract to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if the event does not happen or its happening become impossible before the expiry of that time.

• Ramesh promises to pay Suresh a certain sum of money if Train will arrive at its scheduled time . The contract may be enforced if train arrives at correct time, and becomes void if the train get delayed or doesn’t arrived at all.

Rule-5• Contingent agreements to do or not to do anything, if

an impossible event happens, are void, whether or not the fact is known to parties (Section 36).

• Aman agrees to pay rs 1000 to vinay if two straight line should enclose a space. The agreement is void.

Example• Nitin agree to pay 1000 to manish if manish will marry

Nitin daughter manju. Manju was dead at the time of agreement. The agreement is void.

Contingent Contract and Wagering Agreement

How do they Differ?

“All Contracts are an Agreement but all Agreements

are not Contracts”

Wagering Agreement• Literally, the word wager means ‘a bet ; something to be lost or

won on the result of a doubtful issue’. • It is a promise to give money or money’s worth upon the

determination or ascertainment of an uncertain event.• The section does not define ‘wager.’ Section 30 states that,

“Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.”

For Instance• Say If A and B mutually agrees that If It rains today, A

will pay B Rs. 100 and If It does not rain, B will pay A Rs. 100.

• It is essential to a Wagering Contract that each party under it may either win or lose depending on the issue of the event and remaining uncertain until that issue is known.

A Contract is Wager If ?• The event is uncertain, not only because it is a future

event but because it is not yet known to the parties.

• Secondly, the parties must have no interest in the event’s happening or non-happening except winning or losing of the bet laid between them.

• Note : Wager Agreements are considered as illegal in the states of Maharashtra and Gujarat.

Wagering Agreement v/s Contingent Contracts.

WAGERING AGREEMENT CONTINGENT CONTRACTS

There is a Reciprocal Promise. There is no Reciprocal Promise.

It Is a void Contract. It is a valid contract.

Future Event is Essential to the Contract.

Future Contract is Collateral to the Contract.

It is always of a Contingent Nature.

It may not be of Wagering Nature.

Parties have no Interest in the Subject Matter.

Parties may have interest in the Subject Matter.

Special Cases• Commercial Transactions.• Lotteries.• Competition Prices.• Insurance Contracts.