Meaning and Definition of Contingent Contract
A contract may either be absolute or contingent. In an absolute contract, promisor undertakes to perform the contract completely, which is to be performed under any event. Under such contracts, if there is any condition for the contract, such condition is bound to take place. A contingent contract is a conditional contract, the condition being of uncertain nature. As such, in a contingent contract, the promisor undertakes to perform the contract upon the happening or non happening of a particular event in future which is of uncertain nature. According to. Section 31 of Indian Contract Act, "a contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen." As such, this is a contract, the performance of which is dependent upon the happening or non-happening of an uncertain event, collateral to such contract.
Example: 'A' promises to pay Rs. 500/- to 'B', a broker it manages to get a two rooms accommodation for him at a rent of Rs 2,500/- per month. It is not a contingent contract although on the face of it, it appears like a conditional contract but it is a complete ordinary contract, because managing two rooms accommodation is not collateral event.
According to Pollock and Mulla, "a collateral event means an event which is neither a performance directly promised as a part of the contract, nor the whole of the consideration for a promise." In simple words, the collateral event is one which does not form part of consideration of the contract and is independent of it.
Example: 'A' contracts to pay Rs. 50,000/- to 'B', a contractor for construction of a building provided the construction is approved by an architect. It is a contingent contract because the consideration of the promise to pay Rs. 50,000/- is for the construction of the building, and the event, approval by architect is a collateral event.
Characteristics of Contingent Contracts
The following are the two essentials of a contingent contract as Is revealed from the above discussion:
(1) The performance of such contracts depends upon the happening or non-happening of some future uncertain event.
(2) The future uncertain event is collateral or incidental to the contract.
Rules Regarding Performance of Contingent Contracts
The following rules regarding the performance of these contracts will apply:
(1) 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. In the event becomes impossible, such contracts become void. (Section 32)
Illustration: 'A' makes a contract with 'B' to sell a horse at a stipulated price, if 'C' to whom the horse had been offered, refuses to buy it. The contract cannot be enforced by law unless and until C refuses to buy the horse.
(2) 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 (Section 33)
Illustration : 'A' agrees to pay a specified sum of money to (as insurance claim), on payment of certain premium, if certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
(3) If a contract is contingent upon how 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 specified time or otherwise than under further contingencies. (Section 34)
Illustration: 'A' agrees to pay a sum of money as a loan to 'B', if 'B' marries 'C'. 'C' marries 'D'. The marriage of 'B' and 'C' must now be considered impossible.
Although, it is possible after D's death. If after 'D's death, 'B' actually marries 'C'. It will not revive the old obligation of 'A' to pay the sum to 'B', since that came to an end when 'C' married 'D'.
(4) Contingent contracts to do or not to do anything, if a specified uncertain event happen within a fixed time, becomes void, if such event has not happened by the expiry of that time or it becomes impossible before the time fixed. (Section 35)
Illustration : 'A' promises to pay on loan a certain sum of money to 'B', if certain ship returns within a year. The contract can be enforced if the ship returns within one year. It will become void if the ship is burnt or drowned within the year.
(5) Contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time. It may be enforced by law when the time fixed has expired or such event has not happened or before the time fixed has expired, and it becomes certain such event will not happen. (Section 35)
Illustration: A promises to pay a sum of money as a insurance claim to B, if 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 a year.
(6) 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 it is made. (Section 36)
Illustration: 'A' agrees to pay Rs. 1,000/- as a loan to 'B' if two straight lines enclose a space. The agreement is void since two straight lines cannot enclose the space.
Thus the rules regarding performance of contingent contracts are as discussed above. We should remember that the contingent contracts are different from the wagering agreements. A contingent contract is a valid contract, but a wagering agreement is void from the very beginning when it is entered. In a contingent contract the future uncertain event is merely collateral while in a wagering agreement, the uncertain event is the sole determining factor of the agreement. Hence, contingent contracts are different from wagering agreements.
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