CONTINGENT CONTRACTS

Contracts are of different types. Since people can get into various kinds of agreement for
performance or non-performance of certain acts. One way of understanding contracts is by dividing
them into two types: Absolute and Contingent. Let us take a detailed look at contingent contracts.

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.

If you look at the contracts of insurance, indemnity or guarantee, they have 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 under
certain conditions. The insurer is not called into action until the event of the death of the insured
happens. This is a contingent contract.

Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined 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: Peter is a private insurer and enters into a contract with John for fire insurance of John’s
house. According to the terms, Peter agrees to pay John an amount of Rs 5 lakh if his house is burnt
against an annual premium of Rs 5,000. This is a contingent contract.

Here, the burning of the house is neither a performance promised as a part of the contract nor a
consideration. Peter’s liability arises only when the collateral event occurs.

Essentials of Contingent Contracts

1] Depends on happening or non-happening of a certain event

The contract is contingent on the happening or the non-happening of a certain event. These said
events can be precedent or subsequent, this will not matter. Say for example Peter promises to pay
John Rs 5,000 if the Rajdhani Express reaches Delhi on time. This is a contingent event.
2] The event is collateral to the contract

It is important that the event is not a part of the contract. It cannot be the performance promised or
a consideration for a promise.

Peter enters into a contract with John and promises to deliver 5 television sets to him. John promises
to pay him Rs 75,000 upon delivery. This is NOT a contingent contract since John’s obligation
depends on the event which is a part of the contract (delivery of TV sets) and not a collateral event.

Peter enters into a contract with John and promises to deliver 5 television sets to him if Brazil wins
the FIFA World Cup provided John pays him Rs 25,000 before the World Cup kicks-off. This is a
contingent contract since Peter’s obligation arises only when Brazil wins the Cup which is a
collateral event.

3] The event should not be a mere will of the promisor

The event cannot be a wish of the promisor. Say for example Peter promises to pay John Rs 5,000 if
Argentina wins the FIFA World Cup provided he wants to. This is NOT a contingent contract.
Actually, this is not a contract at all.

Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August 30, 2018. This is a
contingent contract. Going to Dubai can be within John’s will but is not merely his will.

4] The event should be uncertain

If the event is sure to happen, then the contract is due to be performed. This is not a contingent
contract. The event should be uncertain.

Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July 2018. This is not a
contingent contract because in July rains are almost a certainty in Mumbai.

Enforcement of Contingent Contracts

Sections 32 – 36 of the Indian Contract Act, 1872, list certain rules for the enforcement of a
contingent contract.

Rule # 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.

Peter promises to pay John Rs 50,000 if he can marry Julia, the prettiest girl in the neighborhood.
This is a contingent contract. Unfortunately, Julia dies in a car accident. Since the happening of the
event is no longer possible, the contract is void.

Rule # 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.

Peter promises to pay John Rs 50,000 if the ship named Titanic which leaves on a
dangerous mission does not return. This is a contingent contract. This contract is enforceable by law
if the ship sinks making its return impossible. On the other hand, if the ship returns, then the
contract is void.

Rule # 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, then the event is considered impossible when the person does
anything which makes it impossible for the event to happen.

Peter promises to pay John Rs 5,000 if he marries Julia. However, Julia marries Oliver. Julia’s act
thus renders the event of John marrying her impossible. (A divorce is still possible though but the
happening of the event is considered impossible.)

Rule # 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.

Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a dangerous mission
returns before June 01, 2019. This contract is enforceable by law if the ship returns within the fixed
time. On the other hand, if the ship sinks, then the contract is void.
Rule # 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.

Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a dangerous mission
does not return before June 01, 2019. This contract is enforceable by law if the ship does not return
within the fixed time. Also, if the ship sinks or is burnt, the contract is enforced by law since the
return is not possible.

Rule # 6 – Contracts Contingent on an Impossible Event

If a contingent contract is based on the happening or non-happening of an impossible event, then

Peter promises to pay John Rs 50,000 if the sun rises in the west the next morning. This contract is
void since the happening of the event is impossible.

Void agreement

A void contract cannot be enforced by law. Void contracts are different from voidable contracts,
which are contracts that may be nullified. However, when a contract is being written and signed,
there is no automatic mechanism available in every situation that can be utilized to detect the
validity or enforceability of that contract. Practically, a contract can be declared to be void by a
court of law.[1] So the main question is that under what conditions can a contract be deemed as
void?
An agreement to carry out an illegal act is an example of a void agreement. For example, a
contract between drug dealers and buyers is a void contract simply because the terms of the
contract are illegal. In such a case, neither party can go to court to enforce the contract. A void
agreement is void ab initio, i e from the beginning while a voidable contract can be voidable by
one or all of the parties. A voidable contract is not void ab initio, rather, it becomes void later
due to some changes in condition. In sum, there is no scope of any discretion on the part of the
contracting parties in a void contract. The contracting parties do not have the power to make a
void contract enforceable.[2]
A contract can also be void due to the impossibility of its performance. For instance, if a contract
is formed between two parties A & B but during the performance of the contract the object of the
contract becomes impossible to achieve (due to action by someone or something other than the
contracting parties), then the contract cannot be enforced in the court of law and is thus void.[3] A
void contract can be one in which any of the prerequisites of a valid contract is/are absent for
example if there is no contractual capacity, the contract can be deemed as void. In fact, void
means that a contract does not exist at all. The law can not enforce any legal obligation to either
party especially the disappointed party because they are not entitled to any protective laws as far
as contracts are concerned.