Contingent Contract: Section 31 of the Indian Contract Act

The word "contingent" refers to a future event that cannot be predicted accurately.

A contingent contract is pretty practical or popular type of contract that more often most of us perform. Its enforceability is based on a future event. A contingent event is one whose occurrence or existence is dependent on the influence or occurrence of another event.

What does Contingent Contract Exactly Define?

A contingent contract is one in which the enforceability of the contract is directly dependent on the occurrence or non-occurrence of an event. A contingent contract, according to Section 31 of the Indian Contract Act of 1872, is a contract to act or not act if a certain event linked to the contract occurs or does not occur. In a nutshell, contingent contracts are ones in which the promisor only fulfills his obligations provided specific conditions are satisfied. Contracts for compensation, insurance, and guarantees are examples of contingent contracts.

When is a contingent contract used?

A contingent contract is often used when parties fail to reach an agreement during contract talks. Rather than dissolving the contract altogether, contingent contracts allow the parties to reach a compromise that works for both of them.

A contingent contract is also used when parties can take action only if certain events occur. Insurance contracts are a good example of this: individuals will only need their insurance companies to compensate them if something they have insured is lost or damaged. The insurance firm does not owe this obligation until this happens.

Components of Contingent Contract

Based on the definition of the term specified in Section 31 of the Indian Contract Act, the following are the fundamentals of the term "contingent contract" −

Section 31 of the Indian Contract Act defines contingent contracts as having the following key components −

The Contract’s Performance Must Be Conditional

The contract's event must take place in the future and be unpredictable. A contract is not termed contingent if its performance is contingent on a future occurrence that is certain to occur.

A Legitimate Contract must exist to do or Refrain from Doing Anything

Sections 32 and 33 of the Indian Contract Act deal with the enforcement of a contingent contract based on whether or not certain events occur.

However, if the contract is about executing or refusing to perform an obligation, then it is legal; otherwise, it is not.

Events Must Not Be Left up to the Promiser’s Decision

The occurrence of the event being considered a contingency must not be reliant on the promise in any manner. It has to be completely futuristic in nature.

The Specified Event Should Be a Contractual Term

The occurrence or non-occurrence of the event on which the contract's performance is contingent should not be regarded. The occurrence or non-occurrence of the event should be distinct from the contract and remain independent.

Features of Contingent Contract

Major features of contingent contract are −

• The performance of a contract is determined by whether or not a future, uncertain event happens.

• It can't be enforced if the event doesn't take place.

• If the event becomes impossible, the contract becomes null and void.

• A contract based on the non-happening of an event will enter into force if the event becomes impossible.

Enforcement of contingent contracts

Sections 32 to 36 of Indian Contract Act contain the following provisions about the enforcement of the contingent contract −

Condition #1: Enforcement of contract contingent on the happening of an event

The contingent party contracts to do or abstain from doing something if an uncertain future event happens. Yet the contract cannot be enforced by law unless the event takes place. Such contracts become null and void if the event becomes impossible. [Section 32]

Condition #2: Enforcement of contract contingent on an event not happening

A contingent contract to do or abstain from doing something if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible. If the event takes place, the contingent contract is null and void. [Section 33]

Condition #3: When an event on which a contract is contingent is deemed impossible if it is the future conduct of a living person

If a contract is contingent on how a person acts in the future, the event is considered impossible when such a person needs to perform a task that makes the event impossible to happen. [Section 34]

Condition #4: Contracts contingent on an event happening within the fixed time

Contracts to do or not do anything if a future uncertain event happens within a certain time frame. If the event does not occur and the time period ends, the contract is null and void. It is also null and void if the event cannot occur before the fixed time. [Section 35, Para 1]

Condition #5: Contracts contingent on an event not happening within the fixed time

A contingent contract to do or not do anything if an uncertain event does not happen within a specified time frame may be enforced by law when the fixed time expires and such an event has not happened, or before the fixed time has expired if it becomes certain that such an event will not happen. [Section 35, Para 2]

Condition #6: Contract contingent on an impossible event is void

If an agreement to do or not do something is based on an impossible event, the agreement is null and void, whether the impossibility of the event was known or not to the parties to the agreement at the time the agreement was made. [Section 36]

Conclusion

A contract is a lawfully enforceable agreement. Every contract should include an agreement made with the free consent of the parties to the contract for a lawful consideration and with a lawful goal. To constitute a contract, the agreement should not be ruled void. Every dependent contract is, first and foremost, a contract.

It is a contract to do or not do anything, just like any other contract. It is not, however, an absolute and unconditional one, with no reservations or conditions, that must be followed in all circumstances. Its performance is dependent on some event happening or not occurring (the contingency).

A contract must have a few essential elements in order to qualify as a contingent contract. These factors constitute a contingent contract, and a contract will not be contingent if they are present. To do or not do anything, a valid contract must exist. The contract's performance must be conditional. The stated event must be collateral to such contracts, and it must not be at the discretion of the promisor.

These are some of the rules that should be satisfied for a contingent contract to be enforceable. For example, consider the occurrence of an event, the incidence of an event, and the happening of an event during a specific period of time. A contingent contract can become void in specific situations.

Frequently Asked Questions (FAQ)

Q1. What are the rules of a contingent contract?

Ans. Contracts to do or not do anything if an uncertain future event happens cannot be enforced by law unless and until that event occurs. Such contracts become null and void if the event becomes impossible.

Q2. What are the features of a contingent contract?

Ans. The performance of a contingent contract is contingent on whether or not a future event occurs. A contingent contract cannot be enforced now that the specified event has happened. If the contract's underlying event becomes impossible, the contract is null and void.

Q3. What is the importance of a contingent contract?

Ans. Contingent contracts are usually made when negotiating parties fail to reach an agreement. The contract is marked "contingent" because the terms are not final and are contingent on the occurrence of specific events or conditions. A contingent contract can also be viewed as protection against a future change of plans.

Q4. Are contingent contracts valid?

Ans. The contingent contract is valid as far as it fulfills the essentials of contracts.

Q5. A contingent contract is valid or void?

Ans. The validation or non-validation of the contingent contract is decided by the happening or non-happening of the uncertain event. Yet if the contract is based on a condition that's unable to be fulfilled, it's void from the start.

Q6. How long does a contingency contract last?

Ans. The contingent contract normally lasts 30 to 60 days. But if the time is specified in the contract, it can last for that time frame.