Contingent Contract

 · 8 mins read

Introduction

A contract comes into existence when one party has made an offer that another party has accepted. Acceptance is the final and unqualified agreement to an offer. Following the creation of the contract, the parties move on to the next step, which is the fulfilment of the object they had in mind. When the contract’s object is completed, neither party’s obligation under the contract ends. After that, the contract is said to be discharged. However, “performance” isn’t the only way a contract can be terminated. A contract may be discharged by:

  1. Performance
  2. Impossibility of performance
  3. Agreements
  4. Breach

Contingent contract deals with discharge of contract by performance. A contingent contract is also known as conditional contract where the condition is of uncertain nature. These contracts are opposite to absolute contracts. An absolute contract is where no condition is involved and completion of the contract is certain. “Contingent contracts” is defined in Section 31 of the Indian Contract Act, 1872.

Section 31: 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.
Example: A contracts to pay B a sum of 50,000 rupees if B’s house is burnt.
In this type of contract, the contract is already subsisting but the performance of the contract is dependent on a specific event. In this definition ‘collateral’ means secondary. Collateral event in Pollock and Mulla is defined as “an event which is neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise.
Example: A contracts to pay B a sum of 5,000 rupees if B’s cricket bat is broken. This can be said to be a contingent contract. The breaking of B’s bat is neither a performance promised as part of the contract nor it is the consideration obtained from B. the liability of A arises only on the happening of the collateral event. Contracts of Insurance, Indemnity and guarantee fall under this category. Ingredients of Contingent Contracts

  1. A contingent contract’s performance is conditioned on the occurrence or non-occurrence of a specific event or condition. The condition may be precedent or subsequent.
    Example: A promises B to pay a sum of 1000 if it rains on the first of the next month.

  2. The event referred to is collateral to the contract. The event is not part of the contract. It should be neither performance promised nor a consideration for a promise.
    Example: If a Zomato delivery guy promises to deliver food for sum of 100 rupees to B. B says he will pay the money only when the food is delivered to him. Now this creates a condition but this is not a contingent contract because delivery of food is part of the contract.
  3. The contingent event should not be mere a ‘will’ of the promisor. In addition to being the promisor’s will, the occurrence should be contingent.
    Example: In Secy of State of India v. A.J. Arathoon, timber was supposed to be supplied to a government department. The timber was to be approved by the superintendent of a factory. He did not approve the timber actually supplied. The supplier sued the government for breach of contract contending that the timber corresponded with its description in the contract and , therefore it should have been approved. The Madras High Court ruled that the contingency was not fulfilled and hence there was no question of any action of breach.
  4. The event must be uncertain. It is a not contingent contract when the occurrence is certain or bound to occur, and the contract is due to be fulfilled.
    Example: Ram agreed to sell his unique key chain to Shyam if the teacher allowed him to give dance class auditions. This will not be called as contingent contract because there were no restrictions from the teacher in the first place and granting of permission was very certain.

Section 32

Section 32: 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. This section deals with enforcement of contracts contingent in an event happening.
A contract that identifies the occurrence of a future contingent event cannot be enforced until and until the event ‘happens.’ The contingent contract is null and void if the occurrence becomes unlikely to occur. Example: A contracts to pay B a sum of money when B marries C. C dies without being married to B. The Contract becomes void.

Case Law: 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 requirements could be met because neither the labor union nor the required authority had given their approval. As a result, the contract could not be enforced against the seller.

Section 33

Section 33: Section 33: Contingent contracts to do or not to do anything if an uncertain future even does not happen, can be enforced when the happening of that event becomes impossible, and not before. This section deals with enforcements of contracts contingent on an even not happening.

When a contingent arrangement is made contingent on an event not occurring, it can only be implemented when the event’s occurrence becomes inevitable. Example: Where ‘P’ agrees to pay ‘Q’ a sum of money if a particular ship does not return, the contract becomes enforceable only if the ship sinks so that it cannot return. Where A agrees to pay sum of money to B if certain ship does not return however the ship returns back. Here the contract becomes void.


Case Law: There was an agreement to sell the property that stated that if the land was notified for acquisition, the earnest money would be returned. The property had already been notified, which the parties were unaware of. On declaration under section 6 of the Land Acquisition Act, the contract became impossible to execute and therefore void.

Section 34

Section 34: 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.

If a contract is contingent on the conduct of a living person, the contract may become unenforceable if the living person does anything to make the ‘event’ or ‘conduct’ unlikely to occur. Example: Where ‘A’ agrees to pay ‘B’ a sum of money if ‘B’ marries ‘C’. ‘C’ marries ‘D’. This act of ‘C’ has rendered the event of ‘B’ marrying ‘C’ as impossible; it is though possible if there is divorce between ‘C’ and ‘D’.


Case Law: 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.

Section 35

Section 35: 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. This is the case when Contingent on happening of specified event within the fixed time. Example: If a ship called California returns before June 1, 2018, Leela agrees to pay Bhansali a sum of money. If the ship arrives within the agreed-upon time period, the contract will be enforced. If the ship sinks, however, it becomes null and void.

Section 35: 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 has expired, if it becomes certain that such event will not happen. This is the case when contingent on specified event not happening within fixed time. Example: If a ship named California does not return by March 31, 2018, Leela agrees to pay Bhansali a sum of money. If the ship does not return by March 31, 2018, the contract will be enforced. Furthermore, if the ship is burned before the deadline, the contract will be enforced by law since the ship’s return is unlikely.

Section 36

Section 36: 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. Example: X agrees to pay Y, Rs. 10,000 if Y will marry X’s daughter P. P was dead at the time of the agreement. The agreement is void. (2) Atish agreed to pay an amount of Rs300 if clocks move anticlockwise after putting in a new battery. This agreement is void as this event of anticlockwise of a clock is impossible.