contingent contracts

 CONTINGENT CONTRACTS 

BY NUPUR GARG 

INTRODUCTION 

Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’ as follows:

‘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’.

In simple words, contingent contracts, are the ones where the promisor perform his obligation only when certain conditions are met. The contracts of insurance, indemnity, and guarantee are some examples of contingent contracts.

ESSENTIAL ELEMENTS 

• There Must Be a Valid Contract To Do Or Not To Do Something

Sections 32 and 33 of The Indian Contract Act, 1872 refer to the enforcements of contracts on an event happening and, on an event, not happening respectively. A contingent contract will be valid only if it is a contract to do or not to do something. For instance, if a person A contracts to pay B, another person, a sum of 10,000 if B’s house is burnt, it is a valid contingent contract. On the other hand, the agreement to pay minimum demand charges, there is no event happening and the consumer has to pay it. This is a reference to the case Northern India Iron and Steel Co. Ltd. vs The State of Haryana and another, in which the Court held that Section 31 of the Act has no applicability in that case since there was no event.

• The Performance of The Contract Must Be Conditional

The event contemplated should be some future, uncertain event. If the performance of obligation is dependent on a future event which has to occur, the contract will not be a contingent contract. Mere postponement of the time of performance will not make the contract contingent as at some future time. The event has to be very futuristic and uncertain. Dues and obligations don’t come under the definition of being uncertain. An event becomes uncertain only if its occurrence is not in the hands of any individual and the time is in future. It should be totally unpredictable for anyone.

• The Said Event Must Be Collateral to Such Contract

The event on the happening or non-happening of which, the performance of the contract is dependent, must not form a part of the consideration of the contract. For example, X contracts to pay 100000 rupees to Y if Y’s house is destroyed by fire, in consideration of Y paying 400 rupees per month. The consideration for the promise of X to pay 100000 rupees is the payment by Y, monthly of 400 rupees. The obligation to pay 100000 rupees will be enforceable only on the happening of the uncertain event- destruction of Y’s house by fire- which event is independent of the consideration and collateral to the contract.

• The Event Should Not Be at The Discretion of The Promisor

The event so considered as for contingency should not at all be dependent on the promisor. It should be totally a futuristic and uncertain event. In the case of Firm of N.P.O. Ballayya vs K.V.Srinivasayya Setty & Sons, a person agreed with his agent to pay him the expenses of costing, taxes and others if he succeeded in litigation. In this, the event was not at all at the discretion of the promisor. He won the case in subject and was thus held liable to pay the agent. The promisor should have no capacity to guide the event which makes the contract a contingent contract.

CONCLUSION

What is described as ‘contingent contract’ in this topic is familiar to English law as ‘conditional contract’. For a contingent contract, there is a certain event which needs to be fulfilled. The term of these contract are certain and depend on the occurrence or non-occurrence of a future event.