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Essential Elements Of Contingent Contract

Have you ever heard about betting and lottery tickets as they depend on the occurrence and non-occurrence of an event? This contract is very similar to that condition. Let’s learn more.

A contingent contract is a conditional contract, implying uncertainty in the contract. For example – A contract B to pay ₹5,000 on the expiry of the year 2008 or the demise of C. It is not a contingent agreement because these events are most probably certain. But a contract to pay ₹5,000 for demolishing a car in a tragedy is contingent because that contingency may or may not occur.

All life insurance contracts are not contingent; guarantees and indemnity are contingent agreements.

According to Section 31 of the Indian Contract Act 1872, “A contingent contract” is a contract to do or not to do any task, if some event, collateral to such a contract, does or does not happen.”

Essential Elements of Contingent Contract

The following are the essentials of a contingent agreement according to Section 31 of the Indian Contract Act mentioned below:

  1. There should not be the mere will of the promisor in any event.
  2. The occurrence of an event may be within the control of one or both partakers or out of command of both.
  3. Contract to do or not to do any act that wholly depends upon a contingency.
  4. The event must be collateral.

A Contingent Agreement: It is to do or not to do something

Depends upon contingency

The performance of the contract is not finished, and it depends upon the happening or non-happening in the destiny of an uncertain event. Therefore, a contingent contract is distinct from an absolute one, eg.  A contract B made a promise to sell his cycle for ₹1,000, and it is an unqualified and absolute contract.

This contractual obligation of both parties arises when they enter into the contract. The collateral contract obligation of the party does not happen unless and until the happening or non-happening of collateral.

There must be event uncertainty, i.e., it may or may not happen. If the event is safe, the contract is not contingent and must rely upon the happening or non-happening in the future of an uncertain event.

The event must be collateral

The event must be collateral, i.e., random to the contract. An event that is neither a performance directly pledged as part of the contract, nor the entirety of the consideration for a promise is a collateral event.

For Example – In marine insurance, the insurance company pledges to give a particular amount of money in case of an accident of a ship. But the accident is an uncertain event and is collateral to the contract.

For Example, X gives a loan to Y, and Z gives a guarantee to X. It is a contingent agreement because Z will be accountable only if Y fails to perform.

Example: Following are the examples of uncertain events according to Section 31 of the Indian Contract Act:

  1. Occurring of an accident.
  2. Recovery from a severe disease etc.
  3. Success in litigation.
  4. Success in a competition.

The event may be within the control of one or out of control of both parties

The occurrence may be within the power of one or both partakers or out of the control of both. The event may be within the control of one or both parties or condition out of control of both. For example, A condition Y will land money to X on the promise or guarantee of Z; likewise, the treasury will pay the contractor on the agreement of a specific officer.

The event should not depend on the mere will of the promisor

The event should not be the mere action of the promisor. For example, X promises Y that he (X) will give ₹5,000 to Y of his own will. It cannot be a collateral contract, and a contingency does not rely on the mere will and delight of one of the parties in the contract.

Thus, an agreement to work on such salary as the employer agrees to pay cannot be a contingent agreement.

Rules

After learning what is Contingent Contract, let us know about the rules considering the enforcement or execution of the contracts in Sections 32 to 36 of the Act. They are as under

  1. Enforcement of contract being sure of an event happening.
  2. Enforcement of agreement being unsure of an event not happening.
  3. When contracts become void, which is contingent on the happening of a specified event within a fixed time.
  4. When contracts may get executed, which is contingent on a specified event not happening within a fixed time.

Agreements Contingent on Impossible Event are Void

If an event on which contract is contingent to be assumed impossible if It is the future conduct of a living person.

Agreements Contingent on Unusual Events are Void

According to Section 36 of the Indian Contract Act, “Contingent agreements to do or not to do anything if an unprecedented event happens, are void, whether the anticipation of the occurrence is known or not to the parties to the agreement at the time when it is created.”

Conclusion

What is defined as ‘Contingent Contract’ here is ordinary to English law as ‘Conditional Contract’. For a contingent agreement, there is a particular event that requires to be fulfilled. The duration of these contracts is not fixed and depends on the occurrence or non-occurrence of a future event.

This article has been written by Pratibha Sahani.

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