Contingent Contract: Concept And Scope

I. Introduction

The article discusses the concept and scope of the contingent contract. Contract Act is the basis for all the commercial transaction which takes place in the country. When any party enters into a contract there is no optional clause between the parties that one party shall undertake the particular act and other parties may or may undertake his side of obligations.

Once the contract has been entered then its compulsion for both the parties. Now, there exists some exception to it. There are some contracts which are to be fulfilled when certain events take place. These are the contracts whose fulfilment depends upon the occurring of certain events, so these types of contracts are called contingent contracts.

Contingent contracts as defined in section 32 of the Act, states “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.” So the section states that contingent contracts are those contracts whose fulfilment depends upon the occurrence of some event, which is collateral to the contract.

The contracts like A shall pay B if his horse dies. Now, this contract depends upon the happening of the even (dying of the horse) which is collateral to the fulfilment of the contract. B shall get the money only when his horse dies not before that. So since the fulfilment of the contract is dependent on some event, so this will be a contingent contract.

It’s usually said that all the insurance contracts are contingent contracts because the contracts don’t kick in until and unless the happening of the event takes place.[1] So all the insurance contract are similar to that of contingent contracts.

II. Contingent contract & Wagering contract

Now, there is another type of contract- wagering contract, which has the resemblance of the contingent contract but is significantly different from the contingent contracts. The term wagering contract is defined in section 30 of the Act states “Agreements by way of wager are void, and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain events on which any wager is made.”

The section states that when two-person enter into a contract that if some future uncertain events happen then the first party will pay a certain amount of money to the second person and if the future event doesn’t happen then the second person will pay a certain amount of money to the first person. It’s basically a “bet” between two parties where the first party predict that situation A will happen and the other party denies that outcome.[2]

For example, if a cricket match is going on between India & Pakistan, A says that India will win and B says that Pakistan will win. So in this case, both are predicting the happening of some future uncertain events and if A wins B have to pay and vice versa. So contracts like these are termed as the wagering contracts which are deemed as void.

Now there is a substantial difference between contingent and wagering contract:-

1. The most basic difference between the contingent as wagering contract is that in the former case, the parties have a real interest in the occurrence of the future event which is collateral to the fulfilment of the contract, but in the latter case, parties as such doesn’t have any interest in the occurrence of the future event except for winning the bet.
2. In the contingent contract, the future uncertain event is merely collateral to the performance of the contract, but in the wagering contract, the fulfilment of the contract is determined by solely happening of the future event.
3. In the contingent contract, it doesn’t contain a reciprocal promise, i.e. when A said he will pay B Rs. 5000 if his horse dies, then, in this case, there is only one promise from A, i.e. to pay the money when his horse does, so no reciprocal promise B, whereas in wagering contract there is a reciprocal promise from both the parties, like if a cricket match is going on and A says India will win and B says Pakistan, then both are making reciprocal promise to pay a certain amount to each other in case favourable outcomes happen as per them.
4. Lastly, wagering contracts are strictly considered illegal and are deemed void except for the horse race contracts, whereas a contingent contract is considered valid and legally good.

III. Enforcement of contingent contract

The enforcement of a contingent contract has been dealt with in the Indian Contract Act from section 32 to 36. So this paper shall delve into details of each section to understand the scope of contingent contracts.

A. Section 32 of the Indian contract act

Section 32 of the Act states that “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 states what is pretty obvious in the case of a contingent contract. It states that the performance of contingent contract won’t come into effect until and unless the future event happens. This section lays down two principles:-

1. The contract to do an act based on an uncertain future event is not enforced until the time the event takes place.[3]
2. If because of any external factors, the happening of the future event has become impossible the contract becomes void. Like in the example- where A promised to B to pay Rs 5000 in case his horse dies, now the contract will become void if his horse goes missing. Then, in that case, the contract becomes impossible and it stands to void.
3. Another principle flowing from the above is that the contingent contract can also become void if the event has not happened the way contemplated by both the parties.[4] For example, in the above example, if the contract states that the death of the horse should be natural, but if the horse does because of accident or negligence of B then the contract won’t be enforceable. Once the future event takes place, the contingent contract turns into an absolute contract.[5]

B. SECTION 33 OF THE INDIAN CONTRACT ACT

The section 32 of the Act states that “Contingent contracts 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.”

This section states that when a contract is entered for non-happening of the future event, then the parties have to wait until the happening of the future event becomes impossible. Like for example, A enters into a contract with B where he promises to B to pay a certain amount in case his ship doesn’t return from the voyage.

Now if the ship sinks then the objective of the contract becomes impossible, then B can claim the promised amount from A. It’s only when the future event can no longer happen then only the performance of the contract can be demanded.

C. SECTION 34 OF THE INDIAN CONTRACT ACT

The above-mentioned section states that “If the future event on which a contract is a 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.”

This section states that when a contract is entered into by parties which is dependent on the future conduct of any person, then if the person acts in such a way that the future act can’t be performed then the contract shall be deemed impossible.

This can be better explained through the case of Frost v Knight,[6] where the defendant has promised the plaintiff to marry her once her father has died. Now, in the meantime, the defendant has married another girl, while the plaintiff’s father was still alive.

So, in this case, the future conduct of the person deems impossible as he has acted in a way which made the occurrence of the future act impossible. So the plaintiff won the case and compensation was allowed against the defendant.

Another case was when a contract was concluded between two people, wherein defendant promised to purchase the invention of the plaintiff if it was approved by the engineer. Now it was held that there was no contract as the invention was never approved by the engineer in the first place.[7]

D. SECTION 35 OF THE INDIAN CONTRACT ACT

This section states that “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.

When contracts may be enforced, which are contingent on a specified event not happening within the 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.”

This section is specifically focussed on the happening of the future uncertain event within a stipulated time period. This section is divided into two parts, wherein the first part it states that if a contract has been entered into for the happening of a future event within a stipulated time period and if that event doesn’t happen within that period or if the objective itself has been destroyed within the time period that future event can’t take place then the contract is deemed as impossible.

For example, suppose A & B entered into a contract where A promised B to pay Rs. 5000 if his car gets destroyed within a year of entering into the contract. Now, if the car gets destroyed after a year then the contract will be deemed as impossible or if the car gets stolen then the future event itself becomes impossible and in both the case the contract will be deemed void.

Now in the second part of the section is just the opposite of the first part, where it states that if a contract has been entered for the non-happening of the future event within a specified time, then if before the expiration of the specified time-period it seems that the future uncertain event can’t take place the contract shall be deemed as impossible.

Like if two people enter into a contract that if the ship of first-person doesn’t return from voyage after a year then the second person shall pay a certain amount as compensation. Now if the ship gets destroyed within a year’s then second person shall be liable to pay the agreed amount to the first person.

E. SECTION 36 OF THE INDIAN CONTRACT ACT

The section states that “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.”

This section states that if an agreement has been entered between the parties for the happening of an impossible event, then the contract shall be deemed to be impossible. It doesn’t matter whether the party to the contract were aware of the fact that the event was impossible or not. Like if A entered into contract B for marrying his son Z. Now Z was already married, so the event was impossible to take place, so the contract will be deemed as void.

IV. Conclusion

After thoroughly analysing each section it can be stated that though the contingent contract is considered part of the contract act, its application is restricted to happening of a future event which is collateral to the contract entered by the party.

A contingent contract must be differentiated with that of wagering contract or else any contingent contract which in prima facie have the characteristics of wagering contract shall be deemed as illegal. The basic difference between the two is that in the contingent contract the real interest of the parties is in the occurrence of the future event but in case of wagering contract, the interest of the party lies in the winning the contract.

The contingent contract does have a real-life application like insurance contracts, indemnity contracts are all based on the contingent contract and must be regulated for the welfare of the public in general and parties to contract in specific.

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[1] Chandulal Harjivandas v CIT AIR 1967 SC 816

[2] Avtar Singh, ‘Contract & Specific Relief’ (12th Edn, EBC Publication 2017)

[3] Rojasara Ramjibahi Dahyabhai v Jani narottamdas Lallubhai (1986) 3 SCC 300

[4] VP Desa v Union of India AIR 1958 MP 297

[5] Bashir Ahmed v Govt of AP AIR 1970 SC 1089

[6] Frost v Knight (1840) 49 ER 58

[7] Pym v Campbell (1856) 6 El & Bl 370

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