Contingent contracts are agreements whose execution hinges on the occurrence or non-occurrence of a specific future event. These contracts are integral to various legal and commercial transactions in India, and understanding their nuances is essential for law students.

MEANING, DEFINITION & EXPLANATION

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.” In simpler terms, the performance of such a contract is dependent on an uncertain future event that is collateral to the contract. For instance, if A agrees to pay B ₹10,000 if B’s house is burnt, this agreement is contingent upon the event of the house burning. 

ESSENTIALS OF CONTINGENT CONTRACTS

For a contract to be classified as contingent, it must meet the following criteria:

• Existence of a Valid Contract: There must be a lawful agreement between the parties.

• Uncertainty of Event: The event upon which the contract is contingent must be uncertain at the time of the agreement.

• Collateral Event: The event should be collateral to the contract and not a part of the consideration.

• Dependence on Future Event: The performance of the contract should depend upon the happening or non-happening of the specified future event.

• Legal Enforceability: The contract must be enforceable by law.

LEGAL PROVISIONS / PROCEDURE / SPECIFICATIONS / CRITERIA

The Indian Contract Act, 1872, outlines specific provisions regarding the enforcement of contingent contracts:

• Section 32: Deals with enforcement contingent on the happening of an event. Such contracts cannot be enforced unless and until the event has occurred. If the event becomes impossible, the contract becomes void. (India Code)

• Section 33: Pertains to enforcement contingent on an event not happening. These contracts can be enforced when the non-happening of the event becomes certain.

• Section 34: Addresses situations where the contingent event is the future conduct of a living person. If the person acts in a way that makes the event impossible within a definite time, the event is deemed impossible.

• Section 35: Discusses contracts contingent on the happening or non-happening of an event within a fixed time. If the event does not occur within the specified time or becomes impossible before that, the contract becomes void.

• Section 36: States that agreements contingent on impossible events are void, regardless of whether the impossibility was known to the parties at the time of the agreement.

CASE LAWS / PRECEDENTS / OVERRULING JUDGMENTS

1. Nemi Chand and Ors. v. Harak Chand and Ors. (1965): The Rajasthan High Court observed that a contingent contract dependent on an uncertain future event cannot be enforced until the event occurs. The party claiming the contract’s voidness due to the event’s impossibility must plead both legal and factual grounds. 

2. Chandulal Harjivandas v. CIT (1967): The Supreme Court held that all contracts of insurance and indemnity are contingent contracts, as their performance depends on the occurrence of specified uncertain events. 

DOCTRINES / THEORIES

The enforcement of contingent contracts is closely related to the Doctrine of Frustration under Section 56 of the Indian Contract Act, which deals with the impossibility of performance. While contingent contracts anticipate uncertainty and provide for it, the Doctrine of Frustration applies when unforeseen events render the performance of a contract impossible or unlawful, thereby discharging the parties from their obligations.

MAXIMS / PRINCIPLES

The principle “Certum est quod certum reddi potest” applies to contingent contracts, meaning “That is certain which can be made certain.” This underscores that while the event in a contingent contract is uncertain, it is identifiable and can be determined when it occurs.

COMPARISON WITH OTHER COUNTRIES

In common law jurisdictions like the United States and the United Kingdom, contingent contracts are recognized similarly to India. The enforcement depends on the occurrence of a specified uncertain event. However, the specific legal provisions and interpretations can vary based on local statutes and judicial precedents.

TYPES / KINDS

Contingent contracts can be categorized based on the nature of the contingency:

• Contracts Contingent on the Happening of an Event: E.g., A agrees to sell goods to B if a particular ship arrives by a certain date.

• Contracts Contingent on the Non-Happening of an Event: E.g., A agrees to pay B a sum of money if B’s shipment does not arrive by a specified date.

• Contracts Contingent on the Future Conduct of a Living Person: E.g., A agrees to pay B if B’s son marries C.

ESSENTIALS / ELEMENTS / PRE-REQUISITES

For a contingent contract to be valid:

• Lawful Object and Consideration: The contract’s purpose and consideration must be legal.

• Free Consent: Parties must enter into the contract with free consent, without coercion, undue influence, fraud, misrepresentation, or mistake.

• Competency of Parties: Parties must be competent to contract, i.e., of legal age, of sound mind, and not disqualified by law.

DEFENSES / EXCEPTIONS / EXCEPTIONS TO DEFENSES

A contingent contract becomes void if:

• The contingent event becomes impossible.

• The event does not occur within the specified time frame.