The word “contingent” itself means a future event that cannot get predicted with certainty.
A contingent contract is a contract whose enforceability is based on a different event. It means a contingent event means the event’s occurrence or existence depending on the influence or happening of a particular event.
In such a contract, one party performs his obligation on the occurrence of an uncertain event. It is a validly formed contract depending on a contingency and is different from wagering agreements. Let’s get into depth and understand how contingent contract.
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What is a Contingent contract?
According to this section, A “contingent contract” gets defined as,
A contract to perform or not perform an obligation, if some event collateral to such contract does or does not happen.
Some examples of a contingent contract are contract of insurance, contract of indemnity, contract guarantee, etc.
The uncertainty of a future event has a significant role in forming a contingent contract. But, the probability of that event occurring should be less. The validity of a contract is subject to that event occurring, and otherwise, it will be void.
According to section 36 of the Indian contract act, 1872, A contingent agreement on the happening of an impossible event is void regardless of the facts whether the parties were aware of the impossibility or not.
The Indian contract act’s Section 30 defines a wagering agreement, considered void.
Section 30 states that a suit cannot be brought against the recovery of an amount for an event on which wager is made.
The word “wager“ means an act of betting a sum of money on the outcome or result of an uncertain and unpredictable event.
Contingent contract example: a contract of indemnity for a property in which the insurer assures the insured to compensate with the amount of 1 crore rupees in the event of some mishappening —fire, flood, or an act of god, etc.
An example of a wagering agreement: for a match between India and Pakistan, and A agrees to B to give him 1 lakh rupees if India wins. B promises A to pay him if Pakistan loses, then b will pay the same amount to A. It includes reciprocal promises, and the match’s result is an unpredictable event.
Characteristic of Contingent contracts
There are some characteristics of a contingent contract:-
- The contract is performed based on the occurrence or non-occurrence of a particular event.
- The uncertainty of events has significance in a contingent contract. The uncertainty means that there should be no surety on the happening or non-happening of an event.
- The event must get collateral to the contract. It means that the event must be independent and not be a part of the consideration.
Essential elements Of Contingent contract
Some essential elements of a contingent contract include:-
Existence of a valid contract
There must exist a valid contract. Only a valid contract is enforceable in a court of law. The enforceability of a contract contingent on the happening or not happening of an event gets prescribed under sections 32 and 33 of the Indian contract act, 1872.
So, as per the sections mentioned above, these contracts to perform or not perform an obligation based on an event’s happening or not happening are valid.
The occurrence of the event must be uncertain.
The significant part of a contract contingent on the happening of an event is that the occurrence of the concerned event must be uncertain.
The event on whose occurrence the contract will get enforced must occur in the time ahead(i.e. future).
Uncertainty on the event collateral to the contract is a crucial part of this contract. If the concerned event is certain to happen, it will not be considered a contingent contract.
The event must get collateral to the contract.
The event on who occurrence or non-occurrence the performance or non-performance of the contract depends must be collateral to the contract.
It means that the event must not form part of the consideration of the contract and exist independently.
The happening should not get based on promisor’s will
The happening or non-happening of the event contingent on the contract should not depend on the promisor’s will. It should be an uncertain and future event.
Enforcement of contingent contract
The enforceability of the contract should be as per the provisions prescribed under sections 32 to 36. These provisions are:-
Contracts contingent on the happening of an event
According to section 32 of the Indian contract act 1872, a contract that depends on an uncertain event in the future is not enforceable until that event occurs.
The promisor of such contract has to perform his obligations under the contract on the event’s happening.
If such an uncertain event becomes impossible, the contract will get declared void.
Contracts contingent on an event not happening
According to section 33 of the Indian contract act 1872, A contingent contract based on the non-happening of an uncertain future event is not enforceable in the court of law if such event doesn’t occur.
If the concerned uncertain future event doesn’t occur, the contract becomes enforceable, and the promisor becomes liable to perform the contract if the event does not happen.
If such an event becomes impossible to occur, then the contract is enforceable; otherwise, not.
If the future uncertain event occurs, then the contract becomes void on the happening of that event.
Contracts contingent on the conduct of a living person whose act renders the event impossible to happen
A contingency contract depends upon a person’s actions in future; the event is considered impossible if the person commits any act which renders the event impossible.
In simple terms, if an uncertain event becomes impossible to happen resultant from the conduct of a person at an unspecified time, then it renders the contract impossible to be performed, declaring it as void.
This provision gets covered under section 34 of the Indian contract 1872.
Contingent contract on an event happening or not happening within a fixed period.
Section 35 of the Indian Contract Act covers two types of contracts contingent on the happening or non-happening of an uncertain event.
Firstly, a contract contingent on the events happening or not happening for performing the obligation depending upon the happening of a specified uncertain event within a fixed period is considered void if the event becomes impossible or doesn’t happen.
Secondly, there is a contingent contract where parties agree to perform or not perform their obligations if a future uncertain event does not happen within a fixed time.
Such contracts are enforceable in a court of law if the event does not occur or if it becomes certain that the event will not occur before the expiration of the specified time.
The promisor is liable to perform his obligation on the non-happening of such uncertain event within the specified time.
Contracts contingent on an impossible event
According to section 36 of the Indian contract act 1872, A contingent contract on the happening or non-happening of an impossible event is considered void.
It doesn’t matter whether the parties were aware of the fact or not that the event is impossible to happen.
If the event gets connected with a contract contingent or dependent on that event’s happening, then the contract’s validity is questionable.
The contract contingent on an impossible event is itself impossible to get performed.
Difference between contingent contract and wagering agreement
Both contingent contract and wagering agreements get based on uncertain events, but there are significant differences between the two. Let’s discuss:-
- In a contingent contract, a possible uncertain event is not part of the consideration of the contract; it is just collateral to the contract, which means that the contract will get performed entirely on just the happening of that event or fulfilment of certain conditions. The event is uncertain but possible.
Both the promisor and promisee will perform their obligations, and the event is separate from the contract while,
In a wagering agreement, the performance of the contract directly gets based on the happening or non-happening of the uncertain event in which the pending event is part of the consideration. Uncertainty of the event forms part of the agreement. In this agreement, one party gains at the cost of the other’s losing.
This uncertain event is possible or not is a matter of risk.
- A contract contingent based on the happening or non-happening of the events for the performance of the obligations of the parties is a valid contract while,
A wagering agreement is full of risk, not supported by any law, and void.
- In a contingent contract, reciprocal promises are based on the will of the parties while,
In a wagering agreement, reciprocal promises get mandated.
- The future event is collateral in a contingent contract but
In a wagering agreement, the future event is the sole determining factor of the performance of the contract.
- A contingent contract gets defined under section 31 of the Indian contract act of 1872.
A wagering agreement gets defined under section 30 of the Indian contract act of 1872.
- In a contingent contract, both the parties to the agreement gets the benefits while,
Only one party to the deal gets the benefit in a wagering agreement.
- The parties are interested in the event’s happening in a contingency contract.
In a wagering agreement, the parties don’t have any real interest in the event’s happening. They are just interested in winning the amount.
- A contingent contract is not dependent on a chance while,
A wagering agreement is conditional on chance.
- A contingent contract may not involve the risk of losing money while,
A wagering agreement consists of the risk of losing money.
Contingency means a possible future event with an uncertainty of its happening, and the performance of a contingent contract directly gets based on such uncertain future possible event. The same is explained above in this article.
The possibility of the event is requisite because if the event becomes impossible and the event doesn’t happen, then there will be no point of dependency.
In contrast with the contingent contract, a wagering agreement is recognised as a void agreement because the uncertain event is part of the consideration of the contract. So, it is better to avoid wagering agreements and form an agreement based on an uncertain event that is not part of the consideration of the contract and is collateral to the contract.
A transaction forming part of a wagering agreement is not recognised by law as valid, and also, this agreement is not enforceable in a court of law.
FAQs Relating to contingent contract.
Is there any exception to the Indian Contract Act’s section 30?
Yes, Section 30 of the act states that agreements by wager as void agreements, but it exempts the agreements related to any prize or plate of the value of five hundred rupees and above related to a “horse race”.
At which stage of a contract for an uncertain event happening or not happening within a fixed period can get enforced?
A contract for happening or not happening of an event within a fixed period is enforceable at any stage(i.e. Before or after the expiry of the time) as per section 35 of the Indian contract act 1872.
Where are the provisions stated for the performance of the obligations for the parties in a contract?
The provision for the performance of the obligations for the parties to a contract get enshrined under chapter VI, section 37 of the Indian Contract Act 1872.
Which section of the act is related to the Indian penal code 1860?
Section 30 of the Indian contract act has an exception that states that nothing under this section affects the provision of section 294A of the Indian penal code, which applies to transactions related to horse racing.