Under section 31 of the Indian Contract Act, 1872, the Contingent contract is defined as` a contract to do or not do something, if some event, collateral to such contract, does or does not happen.
Contingent Contracts in simple words mean these are those contracts where a promise is conditional and based on some happening and non-happening of some uncertain future event, the contract shall perform.
For example, Ramesh contracts to pay Suresh Rs 50,000 if Suresh’s shop is burnt. This is contingent.
Essentials of contingent contract
There must be a valid contract to do or abstain from doing anything. For this essential condition 1 and 2 talk about the implementation of the contingent contract on happening or not-happening of the events or work that needs to be done respectively.
Performance of the contract must be conditional
the conditions or the reasons for which the contract has been entered into must be a future event, and it should be uncertain.
- The said event must be collateral to such a contract
- The event should not be at the discretion of the promise
Enforcement of Contingents Contracts
Section 32 to 36 of the Indian Contract Act, 1872, lists certain rules which are related to the enforcement of contingent contracts.
The section is as follows:
Section 32- Enforcement of contracts contingent contract on an event happening
‘Contingent contracts to do or not do anything if an uncertain future event happens cannot be enforced by laws unless and until that event has happened. If the event becomes impossible, such contracts are called void.’
Case- Nandkishore Lalbagh v New Era Fabrics Pt. Ltd.& Ors. (2015) 9 SCC 755, AIR 2015 SC 3796, 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.
Section 33- Enforcement of contracts contingent on an event not happening
‘Contingent contract is to do or abstain from doing anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.’
Case- Gian Chand v Gopala and Ors. (1995) SCC (2) 528, JT 1995 (2) 513, 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 not notified for acquisition. Unknown to the parties, the land was already under the notification. The contract became impossible for performance and therefore void on declaration under section 6 of the Land Acquisition Act.
Section 34- When an event on which the contract is contingent is to be deemed impossible if it is the future conduct of a living person.
In this section, if there is a future event that tells about a contingent contract that is made in such a way that the person will do an act that will be at an unspecified time then the event will be considered to become impossible, and that he should do the act within a specified time or will be under further contingencies.
Case- Frost v Knight (1872) 7 Ex. 111: 41 L.J. Ex. 78: 26 L. T. 77
The defendant promised to marry the plaintiff after 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- A. When a contract becomes void it is contingent on the happening of a specified event within a fixed time. ‘Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time becomes void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.’
B. When contracts may be enforced, which are contingent on a specified event not happening within a 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.’
For example, Geeta promises to pay a sum of money to Sanjay if a ship named California does not return before 31st March 2018. The contract may be enforced if the ship does not return before 31st March 2018. Also, if the ship is burnt before the given time, then the contract can be enforced by law since the return of the ship becomes impossible.
Section 36- Agreement contingent on impossible events void.
‘Contingent agreements to do or not 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’
For example, 1. Ram agrees to pay Sita Rs 5000 if the Sun rises in the west on Wednesday. This agreement is void since the happening of the event is impossible.
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 the anticlockwise clock is impossible.
Contingent Contract will be used on daily basis and it tells about those which promise a conditional and on the happening and non-happening of some uncertain future event which the contract shall perform underacts.