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Contingent Contract under Indian Contract Act

Contingent Contract under the Indian Contract Act

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A contingent contract is an arrangement that suggests activities under specified circumstances which will lead to certain results. When an occurrence or position is dependent or contingent, it suggests that it be subject to some other event or actuality. For instance, at times acquiring a brand-new vehicle must be dependent upon someone else purchasing the old automobile at the outset.

Introduction:

Section 31 of the Indian Contract Act, 1872 tells about the expression ‘Contingent Contract’. These contracts are the one where the execution of an individual’s responsibility is witnessed only when specified requirements are met.  A familiar illustration of such contracts originates in the kind of employment discussions, guarantee, contracts of insurance, and indemnity. Contingent contracts can be operated under countless backgrounds such as job, university, home environment, etc.

Necessities:

An agreement to carry out or refrain from performing something.

Section 32 and Section 33 of the Act debates about application of the contract on the occurrence of the incident or the non-occurrence of the happening, separately. The contract will be legally binding simply if it is regarding the performance or omitting to do something. For illustration, if A and B sign up into an agreement that if A’s building is damaged, then B will give him Rs. 50,000 it will be a legitimate contingent contract.

Execution of the Contract must be uncertain under contingent contracts

The terms for which the contract has been submitted must be a forthcoming affair, and it should be uncertain. If the implementation of the contract is reliant on an occasion, which is even though an upcoming affair, but certain and surely will come about, then it will not be deemed as a contingent contract. Also, if there is only a delay in the existence of the eventuality it would not create a contingent event. The incident should be entirely volatile for a person and the occurrence or non-occurrence of the incident should not be under the control of the person.

Incident should not be at the option of the Promisor

The incident on whose occurrence or non-occurrence, the contract can be imposed should not depend on the promisor. In the judgement of N.P.O Ballaya v. K.V.S Setty and Sons, it was apprehended by the law court that where an individual assured his attorney that in a court case he wins the lawsuit, he’ll give the attorney his expenditures associated to duty and price, the incident would not be under the control of the promisor and wouldn’t be at his will, for the reason that he cannot influence the lawsuit. To create a contingent contract, the promisor must not have any capacity to monitor the actions.

Incident must be Collateral to the Contract

The occurrence or non-occurrence of the incident on which the execution of the contract is reliant should not be related to the consideration of the contract. The occurrence or non-occurrence of the incident should be collateral to the contract and should be independent.

Guidelines concerning Contingent Contracts (Sections 32-36): 

The guidelines involving the application of contingent contracts are:

Contingent contract reliant on the occurrence of an incident: 

A contingent contract is based on the occurrence of the unsure incident. If it is the issue, it must be performed or not to be performed whatsoever. Though, the agreement cannot be imposed by law unless the incident happens. If the incident becomes unlikely, such a contract turns out to be void.

Contingent contract reliant on the non-occurrence of an uncertain incident: 

When a contract is reliant upon the non-occurrence of a potential incident, it can be implemented only when that incident comes out to be unlikely, and not before. Example: Y agrees to pay Z cash if a specific aircraft does not come back. The aircraft crashed. The contract can be imposed when the craft crashes.

The event linked with human conduct:

Section 34 of the Indian Contract Act, 1872 explains that if an agreement is dependent upon how an individual will perform at a forthcoming point of time, the occurrence is believed to be unlikely when the individual commits something which makes it difficult for the occurrence to come about.

Contract contingent upon the existence of a specific happening within a stable period: 

There can be an agreement wherein both the sides ensure either to commit or abstain from doing something if a potential uncertain incident comes about within a predetermined period. If there is non-occurrence of an incident and period expires then such a contract is void.

Contracts contingent upon the non-occurrence of a stated incident within a determined period:

Contingent contracts may possibly be centred on the non-occurrence of an unclear potential incident within a predetermined moment in time. In such instances, the promisor is responsible to get something done or not to do something if the incident does not take place within the stated period. The contract can be implemented by law if the predetermined time has elapsed and the incident has not transpired prior to the end of the period. Furthermore, if it develops to be sure that the incident will not occur prior to the moment in time it has concluded, then it can be implemented by law.

Contracts contingent upon unlikelihood of an event:

Contingent contracts to do or not to act on anything if an impossible occurrence materializes, are null and void, whether the unlikelihood of the incident is identified or not identified by both the sides to the contract when it is rendered.

Contingent & Wagering Contracts

There is also one more type of contract called wagering contract, which has the similarity of the contingent agreement but is substantially distinct from the contingent agreements. The word wagering contract is outlined in Section 30 of the Act which outlines that when two-individuals move into an agreement that if some upcoming indeterminate incidents transpire then the first person will render a specific sum of money to the second individual and if the forthcoming happening doesn’t transpire then the person will pay a certain amount of money to the second individual and if the future event doesn’t happen then the second individual will render a particular sum of money to the first party. It is fundamentally a “gamble” between two sides where the first side forecast that a particular condition will take place, and the other side refutes that result.

The distinction between Wagering Contracts and Contingent Contracts

The most fundamental variance between the contingent and wagering agreement is that in the former kind of agreement, both the sides have a concern in the happening of the upcoming incident which is collateral to the completion of the contract, but in the latter agreement, both the sides as such doesn’t have any concern in the existence of the forthcoming incident apart from for victory in the bet.

In the contingent contract, the doubtful incident is simply collateral to the implementation of the contract, but in the wagering agreement, the completion of the contract is decided by only transpiring the forthcoming incident.

In the contingent agreement, it does not include a mutual promise, i.e. when X stated that he will render Y Rs. 10,000 if his car crashes, then, in this situation, there is just one promise from X, i.e. to render the money when his car crashes, so no give-and-take promise Y. Whereas in wagering agreement there is a give and take a promise from both the sides.

Finally, wagering agreements are precisely deemed to be unlawful and are regarded to be void excluding for the horse race competition, where a contingent agreement is deemed to be legitimate and lawfully suitable.

Highlights of a Contingent Agreement:

  1. The execution of a contingent agreement hangs upon whether a potential incident takes spot.
  2. A contingent agreement cannot be implemented if the stipulated event takes on.
  3. If the outcome on which the agreement is centred turns out to be unlikely, then the deal turns out to be void.
  4. An agreement established upon the non-occurrence of an outcome becomes applicable only when the happening becomes unlikely.

Conclusion

After carefully evaluating every segment it can be indicated that although the contingent agreement is deemed to be a segment of the Contract Act, its usage is confined to the occurrence of a forthcoming incident which is collateral to the contract submitted by both the sides. By conceding sides to gamble on their projections, a contingent agreement allows sides to “exist with” their disagreements. Intended for a contingent contract, there is a particular incident which requires to be satisfied. The duration of these agreements is specified and hinges on the event or non-happening of a potential occurrence. For an agreement to be contingent, there are particular circumstances which need to be completed, for the reason that it is very apparent that a contingent agreement is not an absolute and an unqualified agreement. The occasion should be collateral to the agreement and should not be under the influence of any of the engaging sides. The contingent agreement does have a practical use like indemnity contracts or insurance contracts which are all centred on the contingent agreement and should be controlled for the wellbeing of the society in common and individuals to contract.

Endnotes

  1. Avtar Singh, ‘Contract & Specific Relief’ (12th Edn, EBC Publication 2017)
  2. Avtar Singh, Contract & Specific Relief, Page- 355, 12th Edition, EBC Publishing (P) Ltd.
  3. (2015) 5 SCC 609
  4. AIR 1954 SC 26
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Nitisha Bhardwaj

Student, Chanakya National Law University Patna

Nitisha Bhardwaj is a writer, speaker, and researcher. She has an affinity for International Aviation and Corporate Law. She is a creative thinker and seeks for balance. For any Clarifications, feedback, and suggestion, you can reach her at Nitishabhardwaj1@gmail.com

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