Introduction
In our society, a Contract enacts as the keystone for an exchange to take place. Every person knowingly or unknowingly enters into various contracts on a daily basis. Contracts can be found in the form of membership of an OTT platform, sports club, library, an institution, etc. In general, the world engages in exchanges when buying things, and/ or when signing a deal at work or company. So one way or the other the society is obliged to fulfill the terms of a contract. One way to understand contracts is by dividing them into Absolute and Contingent Contract. This article will focus on Contingent Contract in detail.
What is a Contract?
As per Section 2 (h) of the Indian Contract Act, the term ‘contract’ can be defined as an agreement enforceable by law. It has to be accepted by both Parties which creates certain obligations that must be fulfilled by them along with the enjoyment of certain rights.
Contract = Agreement + Enforceability
The term ‘Agreement’ is defined in Section 2 (e) of the Indian Contract Act, as “Every Promise and every set of promises forming the considerations for each other, is an agreement.”
Enforceability or Enforceable by law means, when the promises are held valid in the court of law and the parties involved have the capacity to complete the promises made by them.
What is Contingent Contract?
The word ‘contingent’ means an event in the future that cannot be predicted with certainty. Hence a contingent contract refers to those contracts whose enforceability depends or is based on the event. The significant role in drafting such contracts is played by the uncertainty of the future event. The validity of this contract is subject to the event occurring and may make the contract void.
Contingent Contracts are defined under Section 31, chapter III of the Indian Contract act as follows: “If two or more parties enter into a contract to do or not do something if an event which is collateral to the contract does or does not happen, then it is a contingent contract”
Example: A and B sign a contract that states that A will pay Rs. 5,00,00/- if B’s flat gets destroyed by fire.
Essential elements of Contingent Contract
- Existence of a valid contract
There must exist a valid contract that is enforceable in the eyes of the law. Section 32 and 33 of the Indian Contract Act talks about the enforcement of Contingent Contract based on the happening or not happening of the event.
Example: X promised Z to pay Rs. 50,000/- if the ship belonging to Z does not return and sinks into the Sea.
- Performance of the contract must be conditional
The happening or not happening of the condition on which basis the contract has been entered into must be a future event and should be uncertain. If such an event is in the future but certain and sure to happen then it will not be considered a contingent contract.
Example: Y promises to pay Rs. 5,000/- to P if it snows in Jammu in the month of December. This is not a contingent event.
- The event must be collateral of such event
This means that the future event in the contingent contract should not be part of the contract in any form of consideration and not in form of a promise to the contract. It should be collateral and exist independently in the future.
Example: M and N enter into a contract where M will deliver 10 crates of mangoes to N and N will pay Rs. 25,000/- to M upon delivery.
This is not a contingent Contract as the obligation depends on the event which is part of the contract and not a collateral event.
Enforcement of contingent contract
There are mainly Six rules for any contingent contract to be enforced, they are:
- Contingent contracts on the happening of an event
These contracts are based on happening of an uncertain event in the future. The promiser here is either liable to do something or abstain from doing something if the event occurs. However, such an event cannot be enforced by law unless the event takes place.
Example: D promises J to pay him Rs. 10,000 if he buys an XYZ building. Unfortunately, the XYZ building was demolished. Since the event is no longer possible the contract is void.
- Contingent contracts on not happening of an event
Contingent contracts might be based on not happening of an uncertain future event, in such cases the promiser shall be held liable to perform or abstain from performing the something.
Example: X promises to gift Z a gold coin if a certain airplane does not reach its destination. However, if it does then the contract is void.
- Event deemed impossible if it is the future conduct of a living person
If the occurrence of an event is upon how a person will act at a future date, then the event shall be considered impossible, if the person does anything which makes it impossible for the event to happen.
Example: P promises to pay Rs.1,000/- to R if he marries S. However, S marries J thus making it not possible for the event to happen.
- Contingent contracts on an event happening within the fixed time
Those Contingent contracts were to do something or abstain from doing something if a future event happens within a fixed period of time. Such a contract shall be considered void if the event does not take place and the given time lapses.
- Contingent contracts on an event not happening within the fixed time
Those Contingent contracts where to do something or abstain from doing something if a future event does not happen within a fixed period of time. Such contracts may be enforced by the law when the fixed time period has expired.
- Contingent contracts on an impossible event
If a contingent contract to do something or not to do something is based on an impossible event then such contract will be void even if both the parties to the contract were unaware of the impossibility of the event.
Conclusions
Contingent Contracts talks about those contracts wherein a promise is conditional and on the basis of the happening and non-happening of an uncertain event in the future the contract shall be performed.
Bibliography
https://www.vedantu.com/commerce/contingent-contract
https://www.legalkatta.in/2021/09/contingent-contracts-meaning-essentials-and-examples.html
