CONTINGENT CONTRACT
Contracts are an integral part of our daily lives, and understanding their nuances is crucial. One such type of contract is a Contingent Contract, which is governed by the Indian Contract Act.
ESSENTIALS ELEMENTS OF CONTINGENT CONTRACT –
Contingency : The contract must be conditional and dependent on an uncertain future event.
Possibility of Performance : The occurrence or non-occurrence of the event must be possible
Legal Compliance : The contract must not be illegal or against public policy.
PERFORMANCE OF CONTINGENT CONTRACT –
The performance of a contingent contract is subject to certain conditions. If the uncertain event does not occur, the contract becomes void. However, if the event does occur, the contract becomes enforceable, and both parties are obligated to fulfil their respective obligations.
CONTINGENT CONTRACT AND CONSIDERATION –
Just like any other contract, contingent contracts require consideration. Consideration refers to something of value promised by each party in exchange for the other’s promise. It is vital to ensure that the consideration provided is lawful and sufficient for a valid contract.
EXAMPLES OF CONTINGENT CONTRACT –
- Insurance Policies : Insurance contracts are classic examples of contingent contracts. The payout or coverage is contingent upon the occurrence of an insured event, such as an accident or natural disaster.
- Sale of Property Subject to Approval : If the sale of a property is contingent upon the buyer obtaining a mortgage approval, it becomes a contingent contract.
- Performance-Based Contracts : Contracts where payment is contingent upon the completion of specific milestones or the achievement of certain targets are also considered contingent contracts.
RELEVANT SECTIONS –
SECTION 31 (Contingent contract defined) – A contingent contract is a legally binding agreement that depends on the occurrence or non-occurrence of a specific event in the future. In simpler terms, the performance of the contract is contingent upon the happening of an uncertain event. This uncertainty sets contingent contracts apart from other types of contracts.
EXAMPLE – A and B have made an agreement that if B’s house gets burned, A will give B Rs. 10,000 to help with the damages. This agreement is called a Contingent Contract.
SECTION 32 (Enforcement of contracts contingent on an event happening) – These are contracts that only become enforceable if a specific event actually takes place.
EXAMPLE – If A and B had an agreement that A would give B a sum of money once B and C got married. Sadly, C passed away before that could happen. As a result, the agreement between A and B became null and void.
SECTION 33 (Enforcement of contracts contingent on an event not happening) – These are contracts that are only valid if a specific event does not occur.
EXAMPLE – A and B have entered into an agreement where A will provide a predetermined sum of money to B in the unfortunate event that a specific ship does not return. In the event of the ship sinking, the terms of the contract become enforceable, allowing B to receive the agreed-upon payment from A.
SECTION 34 (When an event on which a contract is contingent to be deemed impossible) – If a contract is dependent on a person’s future actions, it becomes void if that action is impossible.
EXAMPLE – A agrees to pay B a sum of money if B enters into a marriage with C. However, due to unforeseen circumstances, it is currently impossible for B to marry C. It is worth noting that there is a possibility that D, the current spouse of C, may pass away, which could potentially open up the opportunity for C to marry B in the future.
SECTION 35 (When contracts become void which are contingent on the happening of specified event within a fixed time) – When contracts may be enforced, which are contingent on specified events not happening within a fixed time)
Contracts contingent on a specified event within a fixed time : If a contract is based on a particular event happening within a set timeframe, it becomes void if that event doesn’t occur within that time frame.
EXAMPLE – A and B, going on a ship. A makes a deal with B, saying they’ll give B some money if the ship comes back within a year. If the ship catches fire and gets destroyed within the year, the deal becomes void. It means A doesn’t have to pay B anymore.
Contracts contingent on an event not happening within a fixed time : If a contract is dependent on a specific event not occurring within a certain timeframe, it can be enforced if that event indeed doesn’t happen within that time frame.
EXAMPLE – A and B made an agreement about a ship. If the ship doesn’t come back within a year, or if it gets destroyed within that time, A has promised to give B some money and the contract becomes enforceable.
SECTION 36 (Agreement contingent on impossible events void) – This statement means that if an agreement is based on events that are impossible to happen, then the agreement is considered invalid or not legally binding.
EXAMPLE – A will give B 1,000 rupees if they can find a way to enclose a space using two straight lines. The agreement is void and no longer valid.
Contingent contracts play a crucial role in legal agreements, as they introduce an element of uncertainty. Understanding the provisions and requirements under the Indian Contract Act is essential for both individuals and businesses to navigate such contracts effectively. By grasping the concept of contingent contracts, one can ensure fair and lawful agreements that protect the rights and interests of all parties involved.
REFERNCES :
https://indiankanoon.org/docfragment/107734956/?formInput=contingent%20contract%20%20%20doctypes%3A%20judgments – INDIAN KANOON
