Meaning, definition and essentials of Contingent Contract

According to section 31 of the Indian Contract Act 1872,

           “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.”

                  • Illustration •

A contracts to pay to B Rs. 1000, if B house is burnt. This is contingent contract.

  On the basis of above definition contingent contract –

1. It is a contract. It fulfills the conditions of section 10.

2. To do or not to do an act. It may be positive or negative.

3. Enforceability depends upon a contingency.

4. Contingency may be happening of an event or not happening of an event.

5. Event is collateral to the contract. Event is not the subject matter of contract.

It is a contract.

Contingent Contract is contract because it fulfills all the criteria of a contract. Section 10 of the Indian Contract Act 1872 requires that an agreement to be a contract it must be made by parties competent  to contract, with their free consent, for  lawful consideration with lawful objects and not expressly declared to be void.
Section 31 to 35 uses the term Contingent Contract while section 36 uses the term Contingent Agreement.  Why this is so ?
The reason behind it is that agreement is to do impossible act/event. Contingent contract depends upon events  happening  or not, and in section 36 event is already known to be impossible very beginning. In other cases these are entirely valid while subsequently becomes impossible. For example ‘A’ agree to sell goods to  B, when two parallel lines meet to each other and cut across.  This act is impossible so it is contingent agreement. It is agreement because it has not taken the shape of section 10.

Examples of Impossibility.

1 . A and B agreed. A promises to give Rs. 1000, if parallel lines crossed. –
In this example the agreement is void. It is void under section 56 para 1 of the Act itself.
2. A and B agreed. A promises to sell goods to B if two parallel lines cross each other.
The agreement is void. It is void under section 36 because contigency impossible itself.
3. A and B agreed. If B gets two parallel lines crossed . If not then B to pay Rs. 1000 to A .
In this example if the act is impossible, it will fall under section 56 para 1 . But it looks like a wagering agreement. Wagering agreement is always made of possible acts. It can not be made of impossible acts.
4. A and B agreed to sell goods. But goods lost in the way which is not known to both the parties. It is impossible to sell.
In this example both parties are not knowing the impossibility then it is case of section 20 of the Act. When both parties know the impossibility it is a case of section 56 para 1 of the Act. When main part of the agreement is possible but contingency is impossible then it is a case of section 36.  When subsequent impossibility is there it is a case of section 56 para 2.

Contingent contract is a contract to do or not to  do an act on the happening of an event or not happening of an event. It may be positive as well as negative. The term ‘ abstinence’ used in section 2(a) and 2(d) and the term ‘ not to do ‘ under section 31 of the Act denotes that contract may be negative. It means contract to abstain from doing something.

Enforceability depends on contingency.

For the contingent contract it is necessary that the enforceability of the agreement must depend upon some contingency. If contigency is fulfilled the agreement becomes enforceable. If contigency is not fulfilled agreement is not enforceable and contract becomes void. It means contract ceases to be enforceable.

Contingency may be happening of an event or not happening of an event.

Contingency may be of two types – happening of an event and not happening of an event. If contigency fulfilled contract is enforceable. It is provided under sections 32 to 35 of the Act.  Section 36 provides contingent agreement void in the ground of impossibility. On happening of event time may be fixed or time may not be fixed. Non happening of event time may be fixed. If time fixed by the parties for happening of event it is subject matter of section 35 para 1. If time fixed by the parties for non happening of an event it is the subject matter of section 35 para 2.

Event is collateral to the contract.

It is necessary that in contingent contract event must be collateral to the contract. If it is main to the contract it is not contingent contract. Event should not be the subject matter of contract. It can be understood by a example.
A promises to sell goods to B, if the ship reaches at Bombay on 1 November. Here main contract is to sell goods. It is contract it depends upon arrival of the ship.
Illustration of section 31 also explains it.

Consequences of Contingent Contract.

The consequences of Contingent Contract have been mentioned under sections 32 to 36 of the Act.
Following are the consequences of a contingent contract. –

1. If contigency fulfilled.

If the contingency which has been fixed in the contingent contract, fulfilled the contingent contract becomes enforceable.

2. If the contingency not fulfilled.

If the contingency which has been fixed in the Contingent Contract, is not fulfilled then contract is not enforceable and contract becomes void. As per Section 2(j) Contract becomes void. It means contract ceases to be enforceable because contigency was not fulfilled.

3. Restitution Allowed.

When contract becomes void, anything given by parties as advance shall be returned to the entitled party. This is called restitution. According to section 65 of the contract act, when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make a compensation from whom he received it.

4. Contingent contract made and subsequently its performance becomes impossible.

When the Contingent Contract was made its performance was possible but later on it becomes impossible. Then it becomes void under section 56 para 2. Section 56 para 2 deals with doctrine of frustration. Thus the doctrine of frustration applies in contingent contract also.

5. All the rules applicable to  general contract are also applicable to contingent contract.

6. Theory of Anticipatory breach of contract is applicable to contingent contract.

7. There may be remedy for the breach contract.

8. When the contingency is of happening of an event or non happening of an event.
When contingency is fulfilled contract becomes enforceable. It is provided under sections 32 to 35 of the Act.
Section 36 deals with contingent agreement void on the ground of impossibility.

Section 32 deals with enforcement of contracts contingent on happening of an event.  A contingent contract on happening of an event can not be enforced unless and until that event has happened. If the event becomes impossible,such contracts become void.

For example ” A makes a contract with B to buy B’s horse if A survives C . This contract can’t be enforced by law unless C dies in A’s life.”

Example when event becomes impossible –  ” A contracts to pay B money when B marries C . C dies without being married to B. The contract becomes void. Because it becomes impossible.

Section 33 provides the enforcement of contracts contingent on an event not happening. Such  contract can be enforced when the happening of that event becomes impossible, and not before.
For example

” A agrees to pay B a sum of money if  a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sunk. ”

9  When the time is fixed for happening of an event or non happening of an event.
This situation has been dealt under section 35 of the Act.
When the time is fixed by the parties for happening of an event this situation has been dealt under para 1 of Section 35.
When the time is fixed by the parties for non happening of an event has been dealt under para 2 of section 35.

Law on this point.

Time fixed for happening ( sectiSe 35 para 1)
• if event does not happen within fixed time.  – the contract becomes void.

•  if the happening of the event becomes impossible – the contract becomes void.

• if event happens within fixed time. –   the contract becomes enforceable.

Time fixed for not happening (Section 35 para 2)

• if event does not happen within fixed time – Contract may be enforced when the fixed time has expired.

• if event happens within fixed time – the contract becomes enforceable.

• if it becomes certain that event will not happen – contract may be enforceable.