Contingent Contracts

What Is A Contingent Contract?

The term contingent contract refers to a contract whose enforceability is directly dependent on the occurrence or non-occurrence of an event. According to Section 31 of the Indian Contract Act, 1872, a contingent contract is a contract to act or not do anything if a certain event related to the contract occurs or does not occur. In simplified terms, contingent contracts are those in which the promisor only fulfills his obligations if specific conditions are satisfied. Compensation, insurance, and guarantee contracts are a few types of contingent contracts. 

For instance, Mr.X agrees to give B Rs. 20,000, if and only if Mr.Z’s building is burned down. This is a contingent situation and this contract is an example of what a contingent contract is. When an event or circumstance is contingent, it signifies that it is dependent on another event or fact. For example, just like, making money is dependent on getting well and qualitative paying work, every event or a result is dependent on any other activity.

Components Of Contingent Contract

The fundamentals of the word contingent contract are as follows, based on the definition of the term provided under section 31 of the Indian Contract Act:

According to Section 31 of the Indian Contract Act, contingent contracts has the following fundamental components: 

• The Contract’s Performance Must Be Conditional:

The event for which the contract was made must occur in the future and should be unpredictable. If the contract’s performance is dependent on a future occurrence that is assured to occur, it is not termed as a contingent contract.

• A Legitimate Contract Must Exist To Do Or Refrain From Doing Anything:

Sections 32 and 33 of the Indian Contract Act deal with the enforcement of a contingent contract based on the circumstances occurring or not occurring. 

However, if the contract is about executing or not performing an obligation then only it will be considered legal otherwise it is not.

• Events Must Not Be Left Up To The Promisor’s Decision:

The event’s occurrence that is being considered as a contingency must not be reliant on the promisor in any way. It must be completely futuristic in nature.

• The Specified Event Should Be A Contractual Term:

The occurrence or non-occurrence of the event on which the contract’s performance is contingent should not be included in the contract’s consideration. The event’s occurrence or non-occurrence should be separate from the contract and exist on its own.

Enforcement Procedure of Contingent Contract  

Sections 32 to 36 of Indian Contract Act includes the following provisions relating to the enforcement procedure of the contingent contract: 

• Contract Enforcement Should Be Conditioned On The Occurrence Of A Specific Event

When an unpredictable future occurrence takes place, contingent contracts are made to do or refrain from doing something. Nevertheless, until the event occurs, the contract cannot be legally enforced. 

• Contract Enforcement Is Conditional On A Non-Occurrence Of The Event 

Whenever the possibility of an uncertain future event occurring becomes impossible, contingent contracts to perform or refrain from doing anything can be implemented. If the event occurs, the contingent contract will be considered void.

• Contracts That Are Reliant On An Event Occurring Within A Certain Amount Of Time Will Be Considered As A Contingent Contract

Contingent contracts are agreements to perform or not do something if a future uncertain event occurs within a certain time frame. If the event does not occur and the time limit expires, the contract is null and invalid. It’s also invalid if the event’s occurrence becomes impossible well before the predetermined period.

• The Contract Becomes Void If An Uncertain Event Occurs:

When a contingent contract becomes void, there are certain conditions that must be met. These are as follows: 

• The contract becomes void if the occurrence on which the contract is predicated becomes impossible to occur, according to Section 32.
• According to Section 34, if somehow the specific time under which a contract is contingent is the manner in which a person would then act at an indeterminate time, the event will be considered impossible whenever that individual does anything that makes it impossible for him to act in that manner within a predetermined period, or under any other contingency.
• A contingent contract to perform or not do anything becomes invalid if a specified unknown event occurs within a certain time period, according to Section 35.
• Section 36 states that contingent contracts to do or not do something if an impossible event occurs are void, regardless of whether the participants to the contracts are aware of the impossibility of the occurrence at the time the contract is established.

Difference Between Contingent Contract Meaning And Wagering Agreement 

Both the contracts have some relevant significance and are interrelated to each other, but they’re quite different. 

• Most wager contracts are contingent in nature, though not all contingent contracts are wager contracts in nature, that is where a big difference comes in.
• The future unpredictable or an uncertain event is only collateral in a contingent contract, but the unpredicted event is the primary determining element in a wagering arrangement.
• In a wager, the participants have no interest in the event’s happening other than to win or lose the most amount, but in a contingent contract, the parties have a genuine interest in the event’s occurrence or non-occurrence.

Conclusion 

There is a certain event that must be met in a contingent contract. These contracts have a fixed duration that is determined by the occurrence or non-occurrence of a specific time.