CONTINGENT CONTRACT UNDER INDIAN CONTRACT ACT, 1872

CONTINGENT CONTRACT UNDER INDIAN CONTRACT ACT, 1872:

 

1. INTRODUCTION:

 

As per Section-2(h) of the Indian Contract Act, an agreement enforceable by law is Contract. In other words, we can say that, a contract is an agreement which is enforceable by law of the land.

 

The word contingent implies when an event or situation is uncertain i.e., it depends on another act or event.

 

Contingent Contract means a contract that contract is directly depends upon happening or non-happening of an event.

 

Section 31 of the Act, defined ‘Contingent Contract’ as, A ‘Contingent Contract’ is a contract to do or not do something, if some event, collateral to such contract, does or does not happen.

 

For example: X contracts to pay to K Rs. 1, 00,000/- if K’s house burnt. This is a contingent contract.

 

Hon’ble court in, Chandulal Harjivandas vs. CIT, it was held that all contracts of insurance and indemnity are contingent.

 

2. CONTINGENT CONTRACT AND WAGERING AGREEMENT:

 

Let’s find out how contingent contract is different from the wagering agreement-

 

•    i.     As per section 30 of the Act, an agreement by way of wager is void, whereas, a contingent contract is valid contract.

•  ii.     In a contingent contract a future event is collateral, whereas, in wagering agreement a future event is essential.

•  iii.        A contingent contract may or may not contain reciprocal promises, while, wagering agreement contain reciprocal promises.

•   iv.        A contingent contract may not be of wagering nature, on the other hand, wagering agreement is always of contingent nature,

•    v.        The parties of a contingent contract may have other interest as well and it is not a game and winning or losing does not matter, on the other hand, the parties of a wagering agreement have no other interest and winning or losing of a game is matter alone.

 

3. ESSENTIAL ELEMENTS OF CONTINGENT CONTRACT:

 

In order to do or abstain from doing anything there must be a valid contract. the contract will be valid only if it talks about performing or not performing of an obligation. After analyzing the definition of the contingent contract under the Act, we can point various essentials of a contingent contract, such as

 

i. Performance of a contract must be conditional:

 

The conditions under which such contract has been made must be a future event and being uncertain. Where the performance of conditions of the contract on an event which is a future event but certain and would happen surely such contract will not be considered as the contingent contract.

 

ii. Event must be collateral to such contract:

 

Events, whose happening or non-happening is the basis for contract, should not be the part of consideration of the contract. The happening or non-happening of the event must be collateral to the contract and should exists independently.

 

iii. The event should not be on the discretion of promisor:

 

The event considered for the contract should not be depend on the discretion of promisor.

 

For example: A promises to pay B, Rs. 40,000 if B leaves Mumbai for America on 1^st January 2023. This is a contingent contract. Going to America can be within B’s wish but is not merely his wish.

 

4. ENFORCEMENT/CATEGORIES OF CONTINGENT CONTRACT:

 

Section-32 to 36 of the Indian Contract Act, 1972 provides provisions relate to enforcement of Contingent Contract and these are also considered as the categories of the contingent contract. Let’s have a look to these provisions: -

 

i. Section-32. Enforcement of contracts contingent on an event happening:

 

Contingent contracts to do or not to do anything if an 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.

 

Illustrations:

 

(a) A makes a contract with B to buy B‟s horse if A survives C. This contract cannot be enforced by law unless and until C dies in A‟s lifetime.

 

(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse.

 

(c) A contract to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

 

In the case of Nandkishore Lalbagh vs New Era Fabrics Pvt.Ltd.& Ors. (2015) a contract for the sale of land with a factory was to be performed only if the labor unions agreed to the sale and further if the change of land use was approved by the appropriate authority. None of these contingencies could be fulfilled because neither there was approval by the labor union nor by the relevant authority. The contract was accordingly not allowed to be enforced against the seller.

 

ii. Section-33. Enforcement of contracts contingent on an event not happening:

 

Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.

 

Illustration:

 

A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

 

In the Case of Gian Chand Vs Gopala and Ors (1995) in this case, there was an agreement to sell the land that provided that the earnest money would be returned in case the land is notified for acquisition. Unknown to the parties, the land was already under notification. The contract became impossible for performance and therefore void on declaration under section 6 of the Land Acquisition Act.

 

iii. Section-34. When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person:

 

If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.

 

Illustration:

 

A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B.

 

In the case of Frost Vs Knight (1872) the defendant promised to marry the plaintiff on the death of his father. While the father was still alive, he married another woman. it was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for the breach of contract.

 

iv. Section-35. When contracts become void which are contingent on happening of specified event within fixed time:

 

Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.

 

When contracts may be enforced, which contingent on specified event is not happening within fixed time:

 

Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed 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.

 

Illustrations:

 

(a) A promise to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.

 

(b) A promise to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

 

v. Section-36.  Agreement contingent on impossible events void:

 

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.

 

 Illustrations:

 

(a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void.

 

(b) A agrees to pay B 1,000 rupees if B will marry A‟s daughter C. C was dead at the time of the agreement. The agreement is void.

 

5. CONCLUSION:

 

Though Indian Contract Act 1872 does not deal with any specific action, it provides bundle of rules and formalities which ensure and monitor the contractual rights where the parties perform an obligation over a engaged contract. Here is a provision under the Act which defines kinds of a contract which is depending on a future uncertain event and performance of obligation depends on the happening or non-happening of a specific event. Life insurance is an instance of Contingent Contract.