Introduction
Contingent contracts are a special category of contracts whose performance depends upon the occurrence or non-occurrence of a certain event that is uncertain at the time of making the contract. These contracts are recognized under Section 31 of the Indian Contract Act, 1872. The fundamental principle of a contingent contract is that the obligation to perform arises only when the event happens. If the event does not occur, the contract may not be enforceable, unless expressly stated otherwise.
Contingent contracts play a crucial role in commercial, insurance, and speculative transactions, where parties anticipate uncertain future events. They combine the principles of contract formation with elements of risk and probability.
Definition
Section 31 of the Indian Contract Act, 1872 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 is called a contingent contract.”
Key Points:
- The event must be uncertain.
- The contract is valid only if the event occurs.
- The contract may be to do or abstain from doing something.
Characteristics of Contingent Contracts
- Dependence on Future Event: The contract’s performance is conditional on the happening or non-happening of an event.
- Example: A agrees to pay B ₹50,000 if B’s house survives a cyclone in the next six months.
- Event Must Be Collateral: The event should not be an act of the parties themselves but something collateral.
- Example: Insurance contracts depend on uncertain events like fire or theft.
- Event Must Be Uncertain: It must be unpredictable at the time of contracting.
- Example: Betting on a future cricket match is uncertain and thus forms a contingent contract.
- Contracts Can Be Void or Enforceable: If the event becomes impossible, the contract may be void under Section 32.
Types of Contingent Contracts
1. Contracts Contingent on the Happening of an Event
- Example: A promises to pay B ₹10,000 if it rains on a particular day.
- Obligation arises only if it rains.
2. Contracts Contingent on the Non-Happening of an Event
- Example: A promises to pay B ₹5,000 if a certain ship does not arrive on a scheduled date.
3. Contracts Contingent on Impossible Events (Void Contracts)
- Example: A agrees to pay B ₹10,000 if a person travels to the moon next week.
- Such contracts are void under Section 32, as the event is impossible.
Performance of Contingent Contracts
- Enforceable When Event Happens: Once the contingent event occurs, the contract becomes a normal contract and can be enforced.
- Becomes Void When Event Does Not Happen: If the event does not occur or becomes impossible, the contract is discharged.
- Contracts Dependent on Time: If the event does not happen within a reasonable time, parties may be excused from performance.
Case Example:
Lalman Shukla v. Gauri Dutt (1913 ILR 41 Cal 282) – A servant who searched for a missing child without the master’s request was not entitled to the reward. Though the event (finding the child) occurred, consideration must move at the promisor’s desire, reinforcing the principle of contingency in performance.
Read Case
Distinction Between Contingent Contracts and Wagering Agreements
| Feature | Contingent Contract | Wagering Agreement |
|---|---|---|
| Basis | Uncertain event collateral to the contract | Event depends on chance or uncertainty |
| Purpose | Legal and enforceable | Illegal under Section 30 of Indian Contract Act |
| Consideration | Must move at promisor’s desire | Often speculative; not enforceable |
| Examples | Insurance, conditional sales | Betting on horse races, lotteries |
Case Example:
Chinnaya vs Ramayya (1882 ILR 5 Mad 36) – Highlighted enforceable contingent agreements versus mere wagers.
Application of Contingent Contracts
- Insurance Contracts: Payment of insurance claims is contingent on damage, theft, or loss.
- Conditional Sales: Goods may be delivered if a specified condition occurs.
- Employment Contracts: Bonuses contingent upon performance targets or profit.
- Real Estate and Commercial Deals: Contracts often include contingencies for permits, approvals, or finance.
Also Read: Capacity to Contract
Key Case Laws on Contingent Contracts
- Lalman Shukla v. Gauri Dutt (1913 ILR 41 Cal 282) – Contingent contracts must be performed at the promisor’s desire.
- Chinnaya vs Ramayya (1882 ILR 5 Mad 36) – Past consideration can support contingent contracts.
- Santosh Kumar v. Union of India (1967) – Contingent contracts in government tenders and performance guarantees.
Conclusion
Contingent contracts add flexibility and predictability to the law of contracts by allowing parties to plan for uncertain future events. They are widely used in insurance, commercial, and conditional agreements, provided they meet the criteria of uncertainty, collateral event, and lawful consideration. The law also distinguishes these contracts from illegal wagers, ensuring enforceability only for bona fide contingent obligations.