Notes on the Essential characteristic of a contingent contract

1. The performance must depend upon the happening or non (-) happening of an event.

2. The event must be uncertain, i.e., it may or may not happen. If the event is sure to happen, the contract is not contingent but an absolute one.

3. The event must be collateral, i.e., incidental to the contract. An event which is “neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise” is known as collateral event.

Example:

There was a contract between A and B for the sale of the American parachute cloth. The delivery was to be made on receipt of goods in the ship. However, the ship arrived without the above goods. B sued A for a breach. A contended that the contract was contingent on the arrival of cloth. Held, the contract was not contingent but an absolute one and the obligation of A was independent and not dependent upon the arrival of goods by the ship. [Ranchhodas v. Nathumal Hirachand & Co.].

From the above characteristics it would appear that wagering agreements, insurance contracts, contracts of indemnity and guarantee are contingent contracts.

Contingency dependent upon an event or an act of a party:

The performance of a contingent contract depends upon the happening or non-happening of a collateral event. The word event is very wide. It includes an act of a party. The party may be a party to the contract or even a third party. Performance of promise should not depend upon the discretion of the party to the contract otherwise it will be invalid. Strictly speaking sale on approval is not a contingent contract.

However, where the sale is subject to approval of a technical expert it can be called contingent contract. For example, A buys certain goods subject to his engineer’s approval. It is a contingent contract. Again, a promise to pay whatever the promisor thinks reasonable is void. However, a promise to pay whatever a third party thinks reasonable is valid.

Rules regarding contingent contracts :

Indian Contract Act has laid down various rules regarding contingent contracts which are as follows:

1. Contracts contingent on the happening of a future uncertain event:

Contingent contracts dependent upon the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible such contracts become void (Sec. 32)

Examples:

(1) A promises to pay B Rs. 1,000 if he marries C. Rs. 1,000 are payable only if B marries C

(2) A promises to pay B Rs. 1,000 if he marries C. C died before the marriage. The contract becomes void.

2. Contracts contingent on the non-happening of a future uncertain event:

Contingent contract 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. (Sec. 33)

Example:

A promise to pay Rs. One lakh to B if B’s ship does not return. The ship is sunk. The contract can be enforced after the ship is sunk and not before.

3. Contracts contingent on future conduct of a living person:

Where a contract is contingent upon the way 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. (Sec. 34)

Example:

A agrees to pay B Rs. 10,000 if B marries C. C marries D. If bigamy is not allowed, then the marriage of B with C must be considered impossible although it is possible that D may die and that C may afterwards marry B.

4. (i) Contracts contingent on the happening of an event within a fixed time:

Contract contingent on the happening of an event within a fixed time becomes void if such event does not happen or the event becomes impossible before the time fixed.

Example:

A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.

(ii) Contracts contingent on the non-happening of an event within a fixed time:

Contracts contingent on the non-happening of an event within a fixed time may be enforced by law if such event does not happen, or it becomes impossible before the expiry of fixed time. (Sec. 35).

Example:

A promises to pay B a sum of money if a 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 the year.

5. Contract contingent on an impossible event void:

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. (Sec. 36).

Examples:

(1) A agrees to pay B Rs. 1,000 if two straight parallel lines should cut each other.

(2) A agrees to pay B Rs. 1,000 if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.