Contingent Contracts | Law of Contracts - CLAT PG PDF Download

Contingent Contracts

•  Meaning:  Contingent contracts are agreements where the promisor's obligation to perform depends on the occurrence of a specific event or condition. The term "contingent" implies that the contract is dependent on the happening or non-happening of a particular event.
•  Examples:  Contingent contracts are commonly found in scenarios such as insurance, indemnity, and guarantee. For instance, a contract between A and B where A agrees to pay B a certain amount if B's house is destroyed by fire illustrates a contingent contract.
•  Definition:  As per Section 31, a contingent contract is an agreement to undertake or refrain from undertaking a specific action based on the occurrence or non-occurrence of an event that is external to the contract.

 Essential Features of a Contingent Contract 

• The performance of a contingent contract relies on the occurrence or  non-occurrence of a specific event. 
• The event that determines the performance is  collateral to the contract  , meaning it is not part of the reciprocal promises that form the  contract  . For example, if A agrees to deliver 100 bags of wheat and B agrees to pay only after that, it's a conditional contract, not contingent, because B's obligation is part of the promise itself. Similarly, if A promises to pay B Rs. 10,000 if he marries C, it's not a contingent contract.
• The contingent event should not be  dependent on the will of the promisor  . For instance, if A promises to pay B Rs. 1,000 if he chooses to, it's not a contingent contract. However, if the event is within the promisor's will but not solely his will, it can be a contingent contract.

Rules Regarding Enforcement of Contingent Contracts 

 Enforcement of Contracts Based on Future Uncertain Events 

• Contracts contingent on the occurrence of a future uncertain event are not enforceable by law until the event happens. If the event becomes impossible, the contract becomes void. For example, if A agrees to buy B's horse if A survives C, the contract cannot be enforced until C dies during A's lifetime.

 Enforcement of Contracts Based on Non-Happening of Certain Future Events 

• Contracts contingent on the non-happening of a certain future event can be enforced when the event becomes impossible, but not before. For instance, if A agrees to pay B if a certain ship does not return, the contract can be enforced when the ship sinks.
• If a contract is dependent on how a person will act at a future unspecified time, the event is considered impossible when the person takes an action that makes it impossible for them to act as agreed within a definite time. For example, if A agrees to pay B if B marries C, and C marries D, B's marriage to C becomes impossible, even though B could still marry C in the future if certain conditions change.

 Contracts Based on Uncertain Specified Events within a Fixed Time 

• Contracts contingent on the occurrence of an uncertain specified event within a fixed time become void if the event does not happen by the specified time or becomes impossible before the time expires. For example, if A promises to pay B if a ship returns within a year, the contract can be enforced if the ship returns within the year and becomes void if the ship is lost before returning.
• Contracts based on the non-happening of a specified event within a fixed time can be enforced when the time expires and the event has not occurred, or before the time expires if it becomes certain that the event will not happen. For instance, if A promises to pay B if a ship does not return within a year, the contract can be enforced if the ship does not return within the year or is lost within the year.

 Contingent Agreements Involving Impossible Events 

• Contingent agreements that involve an impossible event, whether the parties are aware of the impossibility at the time of the agreement or not, are void. For example, if A agrees to pay B if two parallel straight lines enclose a space, the agreement is void because it involves an impossible event.

 Difference between a Contingent Contract and a Wagering Agreement 

• A wagering agreement involves reciprocal promises between parties, whereas a contingent contract may not necessarily involve such promises.
• While a wagering agreement is inherently contingent, a contingent contract does not have to be of a wagering nature.
• A wagering agreement is considered void by law, whereas a contingent contract is legally valid and enforceable.
•  In a wagering agreement, the parties are solely interested in winning or losing the wagered amount, with no other stakes in the subject matter. In contrast, contingent contracts may involve wider interests beyond just the outcome of the wager. 
•  The future event in a wagering agreement is the primary factor determining the outcome, while in a contingent contract, the future event is a collateral aspect, with other factors also playing a role.