First-Year Law Notes & Flashcards

CONTIGENT CONTRACTS 

Meaning and Definition of Contingent Contracts

Contingent Contracts under the Indian Contract Act, 1872

The Indian Contract Act, 1872, under Section 31 , defines a contingent contract as “a contract to do or not to do something if some event, collateral to such contract, does or does not happen.” In simple terms, a contingent contract is one where the performance of obligations by the parties depends upon the happening or non-happening of a future uncertain event. The event must be external to the contract itself, meaning that it should not form part of the direct consideration or promise between the parties.

For example, A agrees to pay B ₹10,000 if B’s house burns down. Here, the enforceability of the agreement depends upon the occurrence of an uncertain event—the burning of B’s house. If the event happens, A becomes bound to pay B. If the event does not happen, A has no obligation. This shows that a contingent contract is neither absolute nor immediately enforceable but depends entirely upon the happening of an event in the future.

Essentials of a Contingent Contract

1. Existence of a Valid Contract

The first requirement is that there must be a valid contract between the parties. All the general essentials of a contract—such as free consent, lawful object, capacity of parties, and lawful consideration—must be present. Contingency only affects the enforceability of the contract and not its validity. A contingent contract is enforceable only when the condition or event takes place, as provided under Section 32 of the Act. If the event is based on its non-happening, then the contract becomes enforceable when it becomes certain that the event will not happen, as per Section 33 .

For instance, P agrees to pay Q ₹50,000 if a particular ship returns safely to the port. The contract becomes enforceable only when the ship arrives, because the event ( return of the ship) has happened. Similarly, if P agrees to pay Q ₹50,000 if the ship does not return, and later the ship sinks in a storm, the contract becomes enforceable since the event has become impossible.

2. Performance Must Be Conditional

The second essential is that the performance of obligations under a contingent contract must be conditional upon the occurrence or non-occurrence of a particular uncertain event. The promisor becomes liable to perform only when the condition is fulfilled. Until then, neither party can enforce the contract.

For example, X promises Y a trip to Goa if Y secures 80% marks in his final examination. The duty of X to perform arises only when Y achieves the required percentage. If Y secures less, the contract never becomes enforceable. Similarly, if A agrees to sell his car to B only if B is appointed as a lecturer in a university, the contract is dependent upon the uncertain event of B’s appointment. If the event occurs, the contract is enforceable; if not, it fails.

3. Condition Must Be Collateral to the Contract

Another important feature is that the uncertain event must be collateral to the contract, i.e., external and independent of the core consideration. If the so-called “event” is merely part of the promise or consideration, the agreement is not a contingent contract but a normal absolute contract.

For instance, X promises to deliver 20 copies of a book to Y upon receiving payment of ₹2,000. This is not a contingent contract because the payment of price is not an uncertain event; it is the very consideration of the contract. On the other hand, if A agrees to transfer property to B if B marries C, then B’s marriage with C is an uncertain event external to the contract, and thus the contract is contingent.

4. Future Event Must Be Uncertain

The event on which the contract depends must be a future uncertain event . If the event is certain to happen, the contract is absolute and not contingent. The very foundation of such contracts lies in uncertainty.

For example, if A contracts to pay B ₹10,000 if it rains tomorrow, the contract is contingent since rainfall tomorrow is uncertain. But if A contracts to pay B ₹10,000 if the sun rises tomorrow, it is not a contingent contract, because sunrise is a certain event and not uncertain . Similarly, if A promises to pay B ₹5,000 if B marries before the age of 25, the contract is contingent since marriage before 25 is uncertain.

5. Event Must Not Be Dependent Solely on the Will of the Promisor

The event on which the contract depends must not be under the absolute control of the promisor . If it is left entirely to his will, the agreement becomes vague and unenforceable. The uncertain event must be independent of the promisor’s discretion to ensure fairness and binding nature.

For instance, if A promises to give B ₹10,000 if he “feels satisfied,” this is not a contingent contract because it depends only on A’s will. However, if A promises to pay B ₹10,000 if India wins the Cricket World Cup, the event is independent and uncertain, making it a valid contingent contract.

Practical Applications of Contingent Contracts

Contingent contracts have wide practical application in modern commerce. The most common example is insurance contracts , where the insurer promises to indemnify the insured upon the occurrence of events such as fire, theft, accident, or death. Similarly, contracts of indemnity and guarantee often involve contingencies based on loss or default by another party. Share market dealings and forward contracts in commodities also operate on the principle of contingency. Even in construction and infrastructure projects, contracts may contain bonus or penalty clauses depending on whether the contractor completes work before or after the stipulated date.

Enforceability of Contingent Contracts under the Indian Contract Act, 1872

The Indian Contract Act, 1872, under Sections 32 to 36 , lays down clear rules regarding when and how contingent contracts can be enforced. These provisions ensure that such contracts are not speculative or arbitrary, but grounded in legally recognizable conditions.

Illustration 1

M promises to pay N ₹10 lakhs if N secures admission to a university abroad by January 1, 2025. Since admission abroad is an uncertain event that is not under M’s control, the contract is valid and contingent.

Illustration 2

X promises Y ₹50,000 if X does not contest in the upcoming municipal elections. Since X’s decision to contest or withdraw is entirely within his personal discretion, this is not a contingent contract but a promise dependent solely on his will.

1. Enforcement of Contracts Contingent on the Happening of an Event (Section 32)

Under Section 32 , when a contract is dependent upon the happening of a future uncertain event, it becomes enforceable only if the event actually occurs . If the event does not happen or becomes impossible, the contract is void and no obligations arise.

Illustration :  
A promises to pay B ₹2 lakhs if B wins a state-level chess championship. If the competition is cancelled by the authorities, the event becomes impossible, and the contract automatically becomes void.

2. Enforcement of Contracts Contingent on the Non-Happening of an Event (Section 33)

Section 33 deals with contracts that depend upon the non-occurrence of a specific event. Such contracts become enforceable only if it is certain that the event will not happen. If the event occurs, the contract cannot be enforced.

Illustration :  
C agrees to pay D ₹25,000 if a particular train does not reach Mumbai by 10 p.m. Due to a technical breakdown, the train is cancelled for the day. Since the event (train reaching Mumbai) did not occur, the condition is satisfied and C is bound to pay D.

3. Contracts Contingent on the Future Conduct of a Living Person (Section 34)

Under Section 34 , when the performance of a contract depends upon how a person behaves or acts in the future, and that person’s conduct makes the event impossible, the contract becomes void. This ensures that contracts tied to uncertain human behaviour are not enforced when the conduct itself prevents the condition from being fulfilled.

Illustration :  
E promises to pay F ₹1 lakh if F’s son starts working in a multinational company within the year. However, the son refuses all job offers and moves abroad for higher studies. Since his conduct makes the event impossible, the contingent contract becomes void.

Enforceability and Voidness of Contingent Contracts

A contingent contract, by its very nature, depends on the happening or non-happening of a future uncertain event. However, the Indian Contract Act, 1872, under Sections 32 to 36 , specifies the exact circumstances under which such contracts can be enforced or become void. These provisions bring certainty and fairness in contractual dealings where future events are beyond the immediate control of the parties.

Contracts Contingent on the Happening of an Event within a Fixed Time (Section 35, Para 1)

This category covers agreements that rely on the occurrence of an event within a specific period. If the event takes place within the stipulated time, the contract becomes enforceable. On the other hand, if the event does not occur within that time frame, the agreement is treated as void.

Illustration: M agrees to deliver raw materials to N provided a shipment arrives before August 1, 2025 . If the shipment reaches the port within that time, M is bound to supply the materials. However, if the shipment fails to arrive by the deadline, the contract becomes void.

Contracts Contingent on an Event Not Happening within a Fixed Time (Section 35, Para 2)

These contracts depend on the non-occurrence of an event during a fixed time period. If the event does not happen within that time, the contract becomes enforceable. However, if the event occurs within the stipulated period, the agreement stands void.

Illustration: M promises to pay N a certain sum if a ship does not return before August 1, 2025 . If the ship is destroyed before that date, making its return impossible, the condition is satisfied and the contract becomes enforceable. But if the ship safely returns before the date, the agreement is void.

Contracts Contingent on an Impossible Event (Section 36)

Section 36 declares that any agreement dependent on an event which is impossible from the outset is void. It makes no difference whether the parties were aware of the impossibility or not at the time of entering the contract. Since the event can never occur, the promise has no legal force.

Illustration: A promises to pay B ₹5,000 if the sun rises in the west. As this is a scientifically impossible event, the contract is void from the very beginning.

When Does a Contingent Contract Become Void?

Although contingent contracts are valid in principle, they become void under certain circumstances laid down in the Act.

1. When the Event Becomes Impossible (Section 32): If the uncertain event on which the contract depends becomes impossible, the contract automatically ceases to exist. For example, X promises to gift Y a car if Y marries Z. If Z marries someone else, the event becomes impossible and the agreement is void.
2. When the Event is Indefinitely Postponed (Section 34): If the conduct of a living person makes it impossible to determine when or whether the event will ever happen, the contract becomes void.
3. When the Event Does Not Occur within the Stipulated Time (Section 35): If the contract fixes a period within which the event must occur, and it fails to happen within that time, the agreement stands void.
4. When the Event is Impossible from the Beginning (Section 36): Any contract based on an inherently impossible event is void ab initio, whether the impossibility is known or unknown to the parties.

Contingent Contracts: Enforceability and Key Features

A contingent contract is an agreement that depends on the occurrence or non-occurrence of a future uncertain event. Such contracts are enforceable only when the specified event happens or fails to happen under the conditions laid down by the parties. The Indian Contract Act, 1872, under Sections 32 to 36 , provides clear rules regarding when such contracts are enforceable and when they become void.

When the Event Becomes Impossible (Section 32)

If the event upon which a contract is contingent becomes impossible due to circumstances beyond the parties’ control, the contract automatically becomes void. In such cases, neither party is required to perform their obligations.

Illustration :  
A promises to pay B ₹50,000 if B successfully completes a trek to Mount Everest. Later, the government imposes a permanent ban on climbing Mount Everest. Since the event has become impossible, the contract is void.

When the Event Becomes Impossible Due to a Person’s Actions (Section 34)

Section 34 covers situations where a contingent event is rendered impossible because of the deliberate actions of a party or a third person. If someone’s conduct prevents the condition from being fulfilled, the contract is deemed void.

Illustration :  
X promises to gift Y a car if Y marries Z. However, Z marries someone else by choice, making it impossible for Y to marry Z. The contract is therefore void because the event can no longer occur due to the actions of Z.

When the Event Does Not Occur Within a Specified Time (Section 35)

Section 35 deals with contracts that are contingent upon an event happening or not happening within a fixed period. If the event fails to occur within the specified time, the contract becomes void. Similarly, if an event that should not have occurred happens within that period, the contract also becomes unenforceable.

Illustration :  
Subh promises to sponsor a trip for Rony if he organises a talk show with his favourite actor within a year. Unfortunately, the actor passes away before the deadline, making it impossible to fulfil the condition. Hence, the contract becomes void.

When the Event Was Impossible from the Beginning (Section 36)

Section 36 applies when the event on which the contract depends is inherently impossible . The contract is void from the outset, regardless of whether the parties were aware of the impossibility at the time of entering into the agreement.

Illustration :  
Rohini promises to pay Payel ₹5,000 if the Sun rises in the west. Since this is scientifically impossible, the contract is void from the beginning.

Key Features of Contingent Contracts

Contingent contracts have distinct characteristics that differentiate them from ordinary contracts:

1. Dependence on an Uncertain Event: The fulfilment of the contract depends entirely on a future event that may or may not occur.
2. Parties and Obligations: There must be a promisor (the party promising to perform) and a promisee (the party for whose benefit the promise is made). Both parties must clearly understand their roles and obligations.
3. Conditional Performance: The duty of the promisor arises only when the specified event occurs, while the promisee’s responsibility is to fulfil l any prerequisite condition stipulated in the contract.
4. External Event: The event triggering the contract must be external and not form part of the consideration itself.

Illustration :  
A contracts with B to pay ₹50,000 if B completes a marathon. Here, B must fulfil the condition of completing the marathon, and A becomes liable to pay only if the condition is met.

Conclusion

Contingent contracts play a vital role in commercial and personal agreements, allowing parties to account for future uncertainties. Their enforceability depends on the happening or non-happening of the specified event within the legal framework provided under Sections 32 to 36 of the Indian Contract Act. Understanding the essentials, obligations of the parties, and circumstances under which such contracts become void ensures that these agreements remain fair, legally valid, and practically enforceable.

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