Contingent Contract- The Indian Contract Act 1872 Free Notes

 

Introduction

A contingent contract is a type of contract in which the performance of the agreement depends on the occurrence or non-occurrence of an uncertain event. Section 31 of the Indian Contract Act, 1872, 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.” In simpler terms, the performance of a contingent contract is conditional upon a future uncertain event. Understanding the contingent meaning in law is vital for law students and professionals, as these contracts often play a significant role in commercial and personal dealings. This article will delve into what is a contingent contract, provide relevant examples, explore legal provisions under the Indian Contract Act, and examine the latest case laws.

 

What is contingent contract?

A contingent contract is one that is dependent on the happening or non-happening of a particular event. The event itself must be uncertain and cannot be under the control of either party to the contract. For a contract to be contingent, the occurrence of the event must be collateral to the agreement, meaning it is not the direct subject matter of the contract but an external condition that must be fulfilled.

Contingent Meaning in Law:

In legal terms, contingent refers to something that is conditional or dependent on an event that may or may not happen. A contingent contract is valid only when the specified condition is met.

Contingent Contract Example:

• A contract to pay B Rs.10,000 if B house is burnt.
• A promise to pay B Rs.1,00,000 if a certain, ship does not return within a year.

To know the Definition and Nature of Contact under Indian Contract Act 1872 click here

Essential Features of a Contingent Contract

• It is a contract to do or not to do something
• Dependent on happening or non happening of an event
• Such on event is a collateral event (i.e. it is collateral) to the contract i.e. the event must not depend upon the mere will of party.
• The event is uncertain

Legal Provisions Governing Contingent Contracts

• Section 31: Definition of Contingent Contracts
  • Section 31 of the Indian Contract Act 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.” This section sets the foundation for understanding the conditional nature of such contracts.
• Section 32: Enforcement of Contingent Contracts
  • Section 32 deals with the enforcement of contingent contracts. According to this provision, contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event occurs. If the event does not happen, the contract becomes void.
  • Example:
    A agrees to sell goods to B if a particular ship arrives at the port by a specified date. If the ship does not arrive, the contract becomes void.
• Section 33: Contracts Contingent on Non-Happening of an Event
  • Under Section 33, if a contract is contingent on the non-happening of an event, it can only be enforced when the event becomes impossible. If the event happens, the contract becomes void.
  • Example:
    A agrees to pay B ₹50,000 if a certain political party does not win the election. If the party wins, the contract becomes void.

Characteristics of a Contingent Contract

1. Happening of Uncertain Future Event [Sec. 32, The Indian Contract Act 1872 ]                                                
2. Non – Happening of Uncertain Future Event[Sec. 33, The Indian Contract Act 1872]
3. Future conduct of a living person[Sec. 34, The Indian Contract Act 1872]
4. Happening of Specified Uncertain Event within Fixed time[Sec.35, The Indian Contract Act 1872]
5. Non – Happening of Specified Uncertain Event within Fixed Time[Sec. 35, The Indian Contract Act 1872] 
6. Impossible Events[Sec.36, The Indian Contract Act 1872]

Contracts contingent upon the happing of an event enforced – such event has happened [32, The Indian Contract Act 1872]

Void – such event because impossible [happening of such event]
Ex.:-    A contract to pay B a sum of money when B marries e dies without being married to B contract – void

Non happening of a future event:- [33, The Indian Contract Act 1872]

Enforced :- when the happening of such events becomes impossible.
Void:- such event has happened.
Ex.:-    A agrees to pay B sum of money if a certain ship does not return. This ship is sunk. The contract can be enforced when the ship sinks

Happening of an event within a specified time [35, The Indian Contract Act 1872]

Enforce :- when such event has happened within the specific time.
Void :- When the happening of such event because impossible before the expiry of specified time.
When such event has not happened within specified time. A promise to pay B sum of money if a certain ship return within a Year.
Enforce :- ship returns within the year .
Void :- If the ship is burnt within the year / not come within the year.

Non – happening of an event within a fixed time [Section 35, The Indian Contract Act 1872]

Enforce :- When the happening of such event because impossible before the expiry of specified time.
When such event has not happened within the specified .
Void:- When such event has happened within the specified period.

Future conduct of a living person. [34, The Indian Contract Act 1872]

Enforced:- When such person acts in the manner as desired in the contract.
Void :- When such person does anything which makes the desired future conduct of such person – impossible – dependent upon certain contingency.
Example: A agrees to pay B a sum of money if B marries C . C married D. The marriage of B to C must now considered impossible, although it is possible that D may die any that C may afterwards marry B.

Impossible events [36, The Indian Contract Act 1872]

• Such an agreement can not be enforced since it is void whether the impossibility of the event was known to the parties or not is immaterial.
  A agrees to pay B Rs.1,000 if two parallel straight lines should enclose a space. Agreements are void.
  A agrees to pay B Rs.1,000 if B will marry A’s daughter C and C was dead at the time of the agreement. Agreement is void.
  
  

Indian Contingent Meaning and Examples

In the Indian legal context, a contingent contract typically refers to agreements that are conditional upon future events. Common examples include:

• Insurance Contracts: Insurance policies are classic examples of contingent contracts where the insurer agrees to compensate the insured upon the occurrence of an event like fire, theft, or accident.
• Wagering Contracts: Though illegal in India, wagering contracts (such as betting) are also contingent contracts since they depend on the outcome of uncertain future events.

Differences Between Absolute and Contingent Contracts

Aspect	Absolute Contract	Contingent Contract
Definition	Performance is not dependent on any uncertain event.	Performance is dependent on the occurrence or non-occurrence of an event.
Enforcement	Immediately enforceable upon formation.	Enforceable only if the contingent event occurs.
Example	A agrees to sell his car to B for ₹50,000 immediately.	A agrees to sell his car to B if B gets promoted by the end of the year.

Types of Contingent Contracts

1. Contracts Contingent on the Happening of an Event
   These contracts are enforceable only if the specified event occurs.
   Example: A agrees to buy goods from B if a particular ship carrying the goods arrives in the port.

2. Contracts Contingent on the Non-Happening of an Event
   These contracts depend on an event not occurring. If the event does happen, the contract becomes void.
   Example: A agrees to sell property to B if B does not go bankrupt within six months.

3. Contracts Contingent on the Conduct of a Third Party
   These contracts are dependent on the actions or conduct of a third party.
   Example: A agrees to sell his factory to B if B’s partner consents to the purchase.

Latest Case Law on Contingent Contracts

Gujarat Maritime Board v. Larsen & Toubro (2017)
In this case, the Supreme Court of India dealt with a contract that was contingent upon the approval of a regulatory body. The contract was deemed contingent because the performance of the agreement depended on the uncertain future approval of the board. The court ruled that until the contingent condition was fulfilled, the contract could not be enforced.

State Bank of India v. Shyama Devi (2021)
In this case, the court addressed a dispute involving an insurance policy, which is a classic example of a contingent contract. The court reaffirmed that insurance contracts are contingent upon the occurrence of specific events, such as death or damage, and can only be enforced when the contingency occurs.

Importance of Contingent Contracts in Law

Contingent contracts play a crucial role in commercial transactions, especially in fields like insurance, real estate, and futures trading. These contracts allow parties to plan for uncertain events and allocate risks accordingly. By defining conditions under which the agreement will become enforceable, contingent contracts bring clarity and security to business transactions.

Difference between Wagering & Contingent agreement.

	Wagering agreement	Contingent agreement
Defined Meaning Nature of uncertain event Void / valid Interest	Not defined u/s 30   Promise to give money or money’s with upon the determinative of an uncertain event. Contingent nature   Void   No other interest in the subject matter of the agreement except within of loss of wagering amt. A wagering agreement is essentially of a contingent nature. Consists of reciprocal promises futures event is the sole determine factor	Defined o/s 31   To do or not to do something if some event. Collateral to such contract does or does not happen Not be a wagering nature   Valid   Have real interest outcome of the uncertain gain. A contingent contract the not be a wagering nature. Not consist a reciprocal promises future event is fully collateral.

To know more about wagering agreement Click here.

Conclusion

A contingent contract under Section 31 of the Indian Contract Act, 1872, is a vital aspect of contract law that deals with agreements whose performance is dependent on uncertain future events. These contracts, defined by their conditional nature, provide a structured way for parties to enter into agreements that hinge on specific events. Whether it’s insurance policies or conditional sales agreements, contingent contracts are integral to managing risk in legal agreements. Understanding the contingent meaning in law and knowing how to handle such contracts is essential for legal professionals and businesses alike.

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