CONTINGENT CONTRACTS

CONTINGENT CONTRACTS

A contract may be (a) an absolute contract, or (b) a contingent contract. An absolute contract' is one in which the promisor binds himself to performance in any event without any conditions. "Contingent" means that which is dependent on something else. 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 (Sec. 31). 

Where, for example, goods are sent on approval, the contract is contingent contract depending on the act of the buyer to accept or reject the goods.

A contingent contract is a contract, the performance of which is dependent upon, the happening or non-happening of an Certain event, collateral to such contract. That is why, a contingent contract is also known as a conditional contract. Any ordinary contract can be transformed into a contingent contract, if the performance is made dependent upon the happening on non-happening of an uncertain event, collateral to such contract.

The two essentials of a contingent contract are:

a) The performance of such a contract depends upon the happening or non-happening of some future uncertain event.

b) The future uncertain event is collateral.

Rules regarding the performance of contingent contract:

The rules regarding the performance of contingent contract, as contained in Sections 32 to 36 of the Contract Act, are given below:

I. If an uncertain future event happens (Section 32):

Contingent contract to do or not to do anything, if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.

II. If an uncertain future event does not happen (Section 33):

Contingent contracts to do or not to do anything, if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before.

III. Upon how a person will act at an uncertain specified time (Section 34):

The event upon which the performance of the contract depends, may also be an 'act of the party'. Thus, a contract which is dependent upon some 'act of the party' is also a contingent contract. It will be interesting to note that the 'act' may be of the either party to the contract or of a third party.

IV. If a specified uncertain event happens within a fixed time (Section 35(1)): 

Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time, be come void, if, at the expiration of the time fixed, such event has not happened, or it, before the time fixed, such event becomes impossible.

V. If a specified uncertain event does not happen within a fixed time (Section 35(2):

Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, may be enforced by law when the time fixed has expired and such event has not happened, or, before the time fixed has expired, if it becomes certain that such event will not happen.

VI. If an impossible event happens (Section 36):

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not known to the parties to the agreement at the time when it is made.

DIFFERENCE BETWEEN A WAGERING AGREEMENT AND A CONTINGENT CONTRACT

1. A wagering agreement consists of reciprocal promises whereas a contingent contract may not contain reciprocal promises. 

2. A wagering agreement is essentially of a contingent nature whereas a contingent contract may not be of a wagering nature. 

3. A wagering agreement is void whereas a contingent contract is valid.

4. In a wagering agreement, the parties have no other interest in the subject matter of the agreement except the winning or losing of the amount of the wager. In other words, a wagering agreement is a game of chance. This is not so in case of a contingent contract.

5. In a wagering agreement the future event is the sole determining factor while in a contingent contract the future event is only collateral.

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Redrafted for Educational Purpose.

Deekshith Kumar,
Assistant Professor of Commerce

Book Reference:

1. Elements of Mercantile Law by N. D. Kapoor
2. Principles of Mercantile Law by Avtar Singh
3. A Textbook of Business Law by Dr. Umesh Maiya
4. Business Law by B.S. Raman