Contingent Contract and It's Related Aspects

Written by: Harshraj Singh Rathore

INTRODUCTION

Let us assume a hypothetical situation wherein, my best friend’s friend owns a shop of mobile phones and my best friend took me to the shop of his friend who owns a shop of mobile phones and after reaching the shop I am impressed with the selected variety of phones which are kept in the shop and I decide to purchase one of the phones named Samsung Galaxy M31 which is reasonable and quite good as compared to other phones. Now, I request the owner of the shop to give me this particular mobile phone for 2 hours so that I can show this mobile phone to my parents and if they like it, I will again come back to the shop to purchase the same phone. If my parents don’t like this particular phone, I will purchase some other phone from the shop. So, the owner of the shop agreed for the same after my humble request and allowed me to take this particular mobile phone at home for a time period of 2 hours. So, a contingent contract is being established between me and the owner of the mobile shop and the shopkeeper cannot record sales for this particular contract because the sales in this case depends on my approval as it might happen that my parents may refuse me to purchase this particular mobile phone. Though there is also a probability that my parents may allow me to purchase this particular mobile phone which I like but there is uncertainty regarding both the situations. Therefore, this contract becomes a “Contingent Contract” and if I approve for the purchase of a particular mobile phone after seeking the consent and feedback from my parents regarding the same, then this contingent contract becomes a valid contract. And if I return the mobile phone to the shop owner after seeking the feedback regarding same from my parents then this contingent contract becomes a void contract as if no contract had ever been established between me and the owner of the shop and such contract will not take place.

“Contingent” means dependent on something and something here refers to the base on which contingent contract depends and the result of that base will determine whether a particular contingent contract entered into by the parties will happen or not. It also means may or may not happen. “Contingent” is actually opposite to the word “absolute”. Contingent contract is not valid when it is established between the parties; it becomes valid depending on an event

· DEFINITION/MEANING

Section 31 of the Indian Contract Act, 1872 defines “contingent contract” as a contract to do or not to do something if some event collateral to such contract does or does not happen. We can understand the term contingent by the following example in a better way. Suppose, any bank, let us say Punjab National Bank, gives loan of rupees 10,000 crores to an industrialist and the third person, let us say ‘A’ gives a guarantee for that loan. So, in this case Punjab National Bank becomes a creditor and the person receiving such loan from the bank becomes principal debtor and the third person ‘A’ who gives guarantee for such loan becomes a “Surety” in the above case. This implies that if an industrialist does not repay a loan or if an industrialist is not able to fulfill his liability of repayment of a loan, then in that case, the person ‘A’ who is a surety here in this case will be liable for the repayment of the loan. Such a contract by a surety will be termed as a “Contingent Contract”. So, we can conclude with the fact that there is an element of contingent contract, in the contract of guarantee.

· PROVISIONS OF CONTINGENT CONTRACT

Section 31-36 of the Indian Contract Act, 1872 covers the aspects of the contingent contract and provides for the rules as to when the contingent contract can be enforceable and when the contingent contract cannot be enforceable.

· ESSENTIAL ELEMENTS OF A CONTINGENT CONTRACT

1. It should not depend on mere will of the promisor.

2. It must be a valid contract.

3. Event is incidental or collateral and sub-ordinate to the main contract not a reciprocal promise.

4. Depending upon happening or not happening of some event.

5. Event is incidental or collateral and sub-ordinate to the main contract not a reciprocal promise.

· CAN AN “INSURANCE CONTRACT” BE A CONTINGENT CONTRACT”?

Actually, “Insurance Contract” is the best example of a “Contingent Contract” because the liability of an insurance company arises only when an event for which the insurance company contracted arises, otherwise the liability of an insurance company will not arise. It means that a contract has already been established between the parties and is still subsisting but the performance of a contract will depend upon a future event on which both the parties agreed to.

· ENFORCEMENT OF A CONTINGENT CONTRACT ON HAPPENING OF AN EVENT

Section 32 of “The Indian Contract Act, 1872” states about an enforcement of contracts contingent on an event happening. It means that until and unless a future uncertain event on which the parties agree happens, a contract cannot be enforced. For example: ‘A’ contracts with ‘B’ to pay rupees 2,000 to ‘B’ if ‘B’ wins the race. If ‘B’ loses the race in future, then ‘A’ will not pay rupees 2,000 to ‘B’. Here, in this situation a future uncertain event is whether ‘B’ will win the race or lose the race. If the event of winning the race happens or takes place, then in that case ‘B’ can be rewarded by ‘A’ with an amount of rupees 2,000.

· ENFORCEMENT OF A CONTINGENT CONTRACT ON NON-HAPPENING OF AN EVENT

This particular provision is mentioned in section 33 of “The Indian Contract Act, 1872”. We can understand this provision with the help of the following example- Suppose, an insurance company contracts with trader that if the ship on which his goods were present gets destroyed due to some unforeseen circumstances before safe arrival, let us say that if the ship sinks in the water or if the ship is hit by hurricane before safely reaching the port or destination, then in that case, the insurance company will grant a claim to the trader. So, here in this case, a condition of non-happening of an event, i.e. an event of non-arrival of ship safely at the destination is an essential element for an enforcement of a contingent contract.

· FUTURE CONDUCT OF A LIVING PERSON

Suppose a borrower Mr. Shubham demands loan from a lender Mr. Piyush. The lender Mr. Piyush puts a condition before granting loan to Mr. Shubham that if Mr. Shanu enters into a trade deal with Mr. Shubham in future, then only he will grant a loan to Mr. Shubham. So, in the above case a contract between Mr. Shubham and Mr. Piyush depends on a future conduct of a living person Mr. Shanu.

KRUTTIVENTI MALLIKHARJUNA RAO V. VEMURI PARDHASARADHIRAO

In this case vendor promised to the purchaser that he would execute the sale deed when both his brothers returned to the village from the place where they had been studying. The court held that in this case no specific date was fixed for the performance of an event agreed by the parties through the contract in which they entered because the event mentioned here in this contract was too indefinite for the purpose of associating it with fixing a date. Purchaser had no say at all and the performance of an event is dependent on both the brothers of the vendors. Hence, other than a question of limitation, defendant could not effectively rely upon such clause to defeat the purpose of such contingent contract.

· CONTINGENT CONTRACT ON HAPPENING OR NON-HAPPENING OF AN EVENT WITHIN A FIXED TIME

Suppose, Ayush contracts with Sahil to pay rupees 1,000 to Sahil if he is able to complete the challenge of eating Domino’s extra large pizza within 5 minutes. So, here Ayush has added time component to the happening of an event.

On the other hand, ‘A’ contracts with ‘B’ to pay rupees 5,000 to ‘B’ if he stops smoking for 3 consecutive years, which will ultimately help him to overcome his addiction of smoking. So, here ‘A’ has added time to non-happening of a specific event of smoking.

M/S ASMAN INVESTMENTS LTD. V. SHRI K.L. SUNEJA AND ANOTHER

In this case an agreement for sell was established and time period of 12 months was added to this agreement for the purpose of obtaining permission from DDA from 13th August, 1986. But, the permission was not granted by DDA within fixed time period and therefore such contingent contract became void.

· CONTINGENT CONTRACTS ON AN IMPOSSIBLE EVENT

When parties enter into the contingent contracts of impossible event which cannot happen in actual or an event which cannot take place or which cannot occur in actual, then such contingent contracts entered into by the party will be termed as void contracts. For example- Mr. Priyanshu contracts with Mr. Nikhil to give him his expensive wrist watch if he wears pair of shoes of a kid of 2 years in his feet. Therefore, this contingent contract between Mr. Priyanshu and Mr. Nikhil shall be void ab initio, i.e. void from the beginning as it is an impossible event which cannot take place or which cannot be done by a layman.

· CONCLUSION

Contingent contract is not valid when it is established between the parties; it becomes valid depending on an event. And just because a contingent contract is dependent on an event does not necessarily make it void or unenforceable. We can always make conditional contracts or contingent contracts and they are valid contracts because contingent contracts have all the essential requirements of a valid contract. If all the above mentioned essentials elements are present then it can be said that it is a contingent contract.

· REFERENCES

Indian Contract Act, 1872

https://indiankanoon.org/

www.scconline.com