CONTINGENT CONTRACTS

CONTINGENT CONTRACTS

Indian Contract Law LAW EXPLAINED
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Contingent contracts refer to contracts in which the promisor will perform his obligation only when a collateral condition(s) are met. Some examples of the same are contracts of insurance, guarantee, and indemnity. Section 31 lays down that a contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. [1]

When a person contracts with another for paying a certain amount of money if the other person’s house is burnt is a contingent contract.

FEATURES OF CONTINGENT CONTRACTS  –

  1. The performance of a contingent contract is made dependent upon the happening or non-happening of some collateral event.
  2. The event on which the performance is dependent is collateral to the contract which means it is not a part of the reciprocal promises which constitute the contract. For example, a contract between A and B to deliver 100 kilograms of rice. In this scenario, if B agrees to pay A only after he receives the supply of rice it cannot be regarded as a contingent contract because the event of making the payment on part of B is a part of the promise itself and not a separate collateral event.
  3. The contingent event should not be dependent on the will of the promisor. If the event is within the promisor’s will but does not constitute the entire will of the promisor it may be considered as a contingent contract.

Example – a contract between A and B, where A agrees to pay B rupees 1000 as a choice, will not be considered as a contingent contract.

RULES REGARDING ENFORCEMENT OF CONTINGENT CONTRACTS  –

They are summarized as follows –  (Sections 32 to 36 of the Indian Contract Act, 1872)

Where enforcement depends upon the happening of an event

Section 32 – A contingent contract requiring an uncertain event to happen in the future cannot be enforced unless and until the event has occurred. If the event becomes impossible such a contingent contract becomes void.

Example – A contracts with B to buy B’s horse if A survives C. The contract can be enforced by law only when C passes away in A’s life-time.

Where enforcement depends upon the non-happening of an event –

Section 33 – A contingent contract requiring a future certain event to not happen can be enforced only when the occurring of the event becomes impossible.

Example – A contracts with B to pay a sum of money if a particular ship does not return. If the ship sinks then the contract can be enforced by law.

The event linked with human conduct –

Section 34 – A contingent contract in which the occurring of an event is based upon the actions of a person to be performed at an unspecified time, should be considered to become impossible when that person does anything which makes it impossible for him to perform the event within the definite time or is followed by further contingencies.

Example – A contracts with B to pay a certain sum to B if B marries C. But C marries D. Marriage between B and C should be considered impossible, even though D may pass away after which C may marry B.

Time-bound contingency

Section 35 – A contingent contract requiring an uncertain specified event to happen in a specified time will become void if at the expiration of the time fixed the event as not happened or before the time fixed event becomes impossible.

Example – A contracts with B to pay a certain sum of money if a particular ship returns within a year. The contract may be enforced on the arrival of the ship within the specified time and it becomes void if the ship sinks in the specified time.

Impossible Events

Section 36 –  A contingent agreement based on the happening of an impossible event is void. It is immaterial whether the parties knew about the impossibility of the event at the time when the agreement was made.

Example –  A contracts with B to pay Rupees 1,000 if two parallel lines intersect. The agreement is void.

CASE LAWS –

 {S-32} Nandkishore Lalbhai Mehta v New Era Fabrics (P) Ltd [2]

A contract for the sale of land with a factory was to be performed only if the labor union agreed to the sale and further if the change of land use was approved by the appropriate authority. None of these contingencies could be fulfilled because neither there was approval by the labor unions nor by the relevant authority. The contract was accordingly not allowed to be enforced against the seller.

 {S-33}  Gian Chand v Gopala[3]

An agreement to sell land provided that the earnest money would be returned in case the land is notified for acquisition. Unknown to the parties, the land was already under the notification. The contract became impossible of performance and, therefore, void on declaration under Section 6 of the Land Acquisition Act.

 {S-34}  Frost v Knight [4]

The defendant promised to marry the plaintiff on the death of her father. While the father was still alive he married another woman. It was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for the breach of contract.

SOURCE –
[1] The India Contract Act, 1872 Bare Act, Professional Book Publishers, 2020.

2 9 SCC 755: AIR 2015 SC 3796.

[3] (1995) 2 SCC 528.

[4] (1872) LR 7 Exch 111.

[5] Avtar Singh – Contract and Specific Relief, Eastern Book Company, Printed by Media Network, 12th edition (Reprint 2019).

[6] Avtar Singh – Textbook on Law of Contract and Specific Relief, Eastern Book Company, Printed by Gopsons Papers Ltd, 7th edition, (2019).

This blog is written by Kushal, KLE Society’s Law College.

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