GURUGRAM UNIVERSITY

Department of Law
`
GURUGRAM

A
ASSIGNMENT Report
On
"CONTINGENT CONTRACT"

SUBMITTED TO :- SUBMITTED BY :-
DR. FARHANA KULDEEP VERMA
FACULTY OF LAW LL.B 1ST SEM.
(ASST. PROFESSOR) LBC-102
 TABLE OF CONTENTS

1. MEANING AND DEFINATION OF CONTRACT.

2. WHAT IS A CONTRACT.

3. DEFINITION OF CONTRACT.

4. THE MAKING OF AN AGREEMENT GENERAL PRINCIPLES.

5. TYPES OF CONTRACT'S.

6. MEANING AND DEFINATION OF CONTINGENT CONTRACT.

7. WHAT IS A CONTINGENT CONTRACT.

8. DEFINITION OF CONTINGENT CONTRACT.

9. ESSENTIAL FEATURES OF CONTINGENT CONTRACTS.

10. ENFORCEMENT OF CONTINGENT CONTRACTS.

11. ABSOLUTE AND CONDITIONAL CONTRACTS.

12. DIFFERENCES BETWEEN CONTINGENT CONTRACTS AND

WAGERING CONTRACTS.

13. CONCLUSION
 MEANING AND DEFINATION OF CONTRACT

What is a Contract ?

The word Contract was derived from a Latin word Contractum. The word
contractum means drawn together.

Simply we can say that Contact is an agreement between two parties that
creates mutual legal obligations. A contract can be either oral or written.
However, oral contracts are more challenging to enforce.

The Indian Contract Act is one of the oldest mercantile laws of our country. It
came into effect on the 1st of September 1872 and is applicable to the whole of
India with the exception of Jammu & Kashmir.

The following are definition with regard to Contract.

Definition of Contract:-

"Agreement creating and defining obligations between the parties is called Contract" -
Salmond

"Any agreement or promise enforceable at law is called Contract"- Pollock

"Agreement upon consideration basis to do or not to do a particular thing is called

contract" - Black Stone

"An Agreement enforceable by law is called contract" - Indian Contract Act, 1872
Sec.2 (h)
 THE MAKING OF AN AGREEMENT: GENERAL PRINCIPLES

The following chart depicts the essential elements of a contract:

1. Offer/ Proposal -

The offer or proposal is the first step in the formation of a contract. When one
person signifies to another his willingness to do or not to do certain things, it is
called an Offer.

2. Acceptance -

An assent or consent given to an offer by the offeree is known as Acceptance

[Section2(b) of ICA]. By saying 'yes', 'ok' or clicking on 'I agree' on an offer on a
website also amounts to acceptance. An offer when accepted becomes an
agreement. An agreement is also called as promise.

Illustration: Offer + Acceptance = Agreement.

3. Consideration -

Consideration is an important element in a contract. A contract without

consideration is not valid. Consideration means 'something in return' for the
offer. Consideration can be in the nature of an act or forbearance.

4. Capacity to contract -
Capacity simply means competence or ability of the parties to come into a
contract. A capable person is the one who is allowed /qualified to enter into a
contract.

5. Free Consent -

Consent means approving the offer of another party after thoroughly analyzing
the pro & cons of the offer.

6. Unlawful Object -

The main purpose of entering into the contract is to fulfil some objective. If the
object of the agreement is to perform an unlawful act, then the contract is
unenforceable. The object of the agreement should not be illegal, immoral or
opposed to public policy.

7. Discharge of Contract -

When the mutual obligations of the parties are fulfilled, the contract comes to
an end. When the contract is ended, it is said to be discharged. In other words,
Discharge means termination of the contractual relations of the parties to the
contract.
8. Damages/Remedies -

he objective of awarding damages by the court is to put the injured party in the
same position as he would have been if the contract had not been breached.
This, under the contract law, is called the Doctrine of Restitution. Monetary
compensation given to the affected party for the loss or injury caused to him
due to the breach is called damages.

9. Impossibility of Performance -

The valid contract must be capable of performance section 56 lays down that.
“An agreement to do an act impossible in itself is void.” If the act is legally or
physically impossible to perform, the agreement cannot be enforced at law.

TYPES OF CONTRACT'S

“Types of Contracts” deals with classification of contracts on the basis of its

enforcement, mode of creation and extent of its execution.

Other Contract:-

Contingent Contract
 MEANING AND DEFINATION OF CONTINGENT CONTRACT

What is a Contingent Contract ?

The word contingent ordinarily means ‘subject to chance’. In the Indian

Contract Act, 1872, this word has been used to mean conditional, just the way
we use it generally. Uncertainty is the hall-mark of the future.

Contingent contract, also called as Conditional contract, is a contract to do

something or not to do something on the happening or non-happening of an
event, which is collateral to the contract. Contingent contracts cannot be
enforced until the uncertain future event happens. If the uncertain future event
becomes impossible, contingent contracts become void.

Contingent contracts, on the other hand, are the ones where the promisor
performs his obligation only when certain conditions are met.

The following is definition with regard to Contingent Contract.

Definition of Contingent Contract :-

Under Section 31 of the Indian Contract Act, 1872, contingent contracts are
defined as follows: “If two or more parties enter into a contract to do or not do
something, if an event which is collateral to the contract does or does not
happen, then it is a contingent contract.”

Example: Peter is a private insurer and enters into a contract with John for fire
insurance of John’s house. According to the terms, Peter agrees to pay John an
amount of Rs 5 lakh if his house is burnt against an annual premium of Rs
5,000. This is a contingent contract.

Here, the burning of the house is neither a performance promised as a part of

the contract nor a consideration. Peter’s liability arises only when the collateral
event occurs.

CASE : In Ismail v/s Daudbhai [(1990) 2 Bom LR 118)], there was a contract
between A and B that if A succeeded in his suit with regard to a certain land in
the possession of B, he would purchase the land from B at a certain fixed price.
the contract was held to be contingent.
If you look at the contracts of insurance, indemnity or guarantee, they have one thing in
common – they create an obligation on the promisor if an event which is collateral to the
contract does or does not happen.

ESSENTIAL FEATURES OF CONTINGENT CONTRACTS

The following are the essential features of a contingent contract

1. Depends on happening or non-happening of a certain event

The contract is contingent on the happening or the non-happening of a certain

event. These said events can be precedent or subsequent, this will not matter.
Say for example Peter promises to pay John Rs 5,000 if the Rajdhani Express
reaches Delhi on time. This is a contingent event.

2. The event is collateral to the contract

It is important that the event is not a part of the contract. It cannot be the
performance promised or a consideration for a promise.

For example Peter enters into a contract with John and promises to deliver 5 television
sets to him. John promises to pay him Rs 75,000 upon delivery. This is NOT a
contingent contract since John’s obligation depends on the event which is a
part of the contract (delivery of TV sets) and not a collateral event.

But If Peter enters into a contract with John and promises to deliver 5 television sets to
him if Brazil wins the FIFA World Cup provided John pays him Rs 25,000 before the
World Cup kicks-off. This is a contingent contract since Peter’s obligation arises
only when Brazil wins the Cup which is a collateral event.

3. The event should not be a mere will of the promisor

The event cannot be a wish of the promisor.

Say for example Peter promises to pay John Rs 5,000 if Argentina wins the FIFA
World Cup provided he wants to. This is NOT a contingent contract. Actually,
this is not a contract at all.

Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August
30, 2018. This is a contingent contract. Going to Dubai can be within John’s will
but is not merely his will.
4. The event should be uncertain

If the event is sure to happen, then the contract is due to be performed. This is
not a contingent contract. The event should be uncertain.

Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July
2018. This is not a contingent contract because in July rains are almost a
certainty in Mumbai.

ENFORCEMENT OF CONTINGENT CONTRACTS

Sections 32 – 36 of the Indian Contract Act, 1872 have laid down the rule
regarding the performance or enforcement of contingent contracts. They are
explained below:

Rule # 1 – Contracts Contingent on the happening of an Event

A contingent contract might be based on the happening of an uncertain future

event. In such cases, the promisor is liable to do or not do something if the
event happens. However, the contract cannot be enforced by law unless the
event takes place.

If the happening of the event becomes impossible, then the contingent contract
is void. This rule is specified in Section 32 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 50,000 if he can marry Julia, the prettiest girl in
the neighborhood. This is a contingent contract. Unfortunately, Julia dies in a
car accident. Since the happening of the event is no longer possible, the contract
is void.

Rule # 2 – Contracts Contingent on an Event not happening

A contingent contract might be based on the non-happening of an uncertain

future event. In such cases, the promisor is liable to do or not do something if
the event does not happen.

However, the contract cannot be enforced by law unless happening of the event
becomes impossible. If the event takes place, then the contingent contract is
void. This rule is specified in Section 33 of the Indian Contract Act, 1872.
Peter promises to pay John Rs 50,000 if the ship named Titanic which leaves on
a dangerous mission does not return. This is a contingent contract. This contract
is enforceable by law if the ship sinks making its return impossible. On the
other hand, if the ship returns, then the contract is void.

Rule # 3 – Contracts contingent on the conduct of a living person who does

something to make the event or conduct as impossible of happening

Section 34 of the Indian Contract Act, 1872 states that if a contract is a

contingent upon how a person will act at a future time, then the event is
considered impossible when the person does anything which makes it
impossible for the event to happen.

Peter promises to pay John Rs 5,000 if he marries Julia. However, Julia marries
Oliver. Julia’s act thus renders the event of John marrying her impossible. (A
divorce is still possible though but the happening of the event is considered
impossible.)

Rule # 4 – Contracts Contingent on an Event happening within a Specific

Time

There can be a contingent contract wherein a party promises to do or not do

something if a future uncertain event happens within a fixed time. Such a
contract is void if the event does not happen and the time lapses.

It is also void if before the time fixed, the happening of the event becomes
impossible. This rule is specified in Section 35 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a
dangerous mission returns before June 01, 2019. This contract is enforceable by
law if the ship returns within the fixed time. On the other hand, if the ship
sinks, then the contract is void.

Rule # 5 – Contracts Contingent on an Event not happening within a Specific

Time

Contingent contracts might be based on the non-happening of an uncertain

future event within a fixed time. In such cases, the promisor is liable to do or
not do something if the event does not happen within the said time.
The contract can be enforced by law if the fixed time has expired and the event
has not happened before the expiry of the time. Also, if it becomes certain that
the event will not happen before the time has expired, then it can be enforced
by law. This rule is specified in Section 35 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a
dangerous mission does not return before June 01, 2019. This contract is
enforceable by law if the ship does not return within the fixed time. Also, if the
ship sinks or is burnt, the contract is enforced by law since the return is not
possible.

Rule # 6 – Contracts Contingent on an Impossible Event

If a contingent contract is based on the happening or non-happening of an

impossible event, then such a contract is void. This is regardless of the fact if the
parties to the contract are aware of the impossibility or not. This rule is
specified in Section 36 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 50,000 if the sun rises in the west the next
morning. This contract is void since the happening of the event is impossible.

If X contracts to pay Y if Y marries Z and Z dies without being married to Y, the

contract becomes void. A contingent contract will become void if the future
uncertain event becomes impossible to occur. Section 32 of the act states that:

“If the event becomes impossible, such contracts become void.”

Absolute and Conditional Contracts:-

An absolute contract is one in which the parties must perform their reciprocal
promises independently of any condition or contingency, and default by one of
them , gives a cause of action to the other. Accordingly, a contract which must
be performed in any event is known as an absolute or unconditional contract.

However, if the promisor binds himself to perform the contract only on the
happening or not happening of an uncertain event and which is collateral to the
contract , the contract is called as contingent contract or conditional contarct. If
performance is made to depend upon a condition which must happen at some
time or other, will not make a contract conditional.
WHAT ARE THE DIFFERENCES BETWEEN CONTINGENT CONTRACTS
AND WAGERING CONTRACTS ?

the following are the main points of difference between the two:

Factors Contingent Contracts Wagering Contract

Meaning It is a contract to do or not to It is a promise to give money

do something with reference or money’s worth with
to a collateral event reference to an uncertain event
happening or not happening. happening or not happening.

Reciprocal It may not contain reciprocal It consists of reciprocal

promises promises. promises.
Uncertain The event is collateral. The uncertain event is the core
event factor
Nature of Contingent contract may not A wagering agreement is
contract be wagering in nature. essentially contingent in
nature.
Interest of Contracting parties has The contracting parties have
parties interest in the subject matter no interest in the subject
in a contingent contract. matter.

Mutuality of Contingent contract is not A wagering contract is a game,

loss and gain based on the doctrine of losing and gaining alone
mutuality of loss and gain. matters.

Effect of Contingent contract is valid. A wagering agreement is void.

contract

CONCLUSION

A contract is an agreement enforceable by law. For every contract, there should

be an agreement which is made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object.

The agreement should not be declared void hereby to form a contract. Every
contingent contract is a contract primarily. Like any other contract, it is also a
contract to do or not to do something.
It is not, however, an absolute and unconditional one, without any reservations
or conditions, which is to be performed under any event. Its performance is
dependent on some event’s happening or not happening- the contingency.

For a contract to be a contingent contract, certain essential elements have to be

there. These elements form a contingent contract and without them, a contract
will not be contingent.

There must be a valid contract to do or not to do something. The performance

of the contract must be conditional.

The said event must be collateral to such contracts and the event should not be
at the discretion of the promisor. These are some rules that have to be followed
for a contingent contract to be enforceable.

For instance, on the happening of an event, on the event not happening and on
the event not happening within a specified time.

There are some situations when a contingent contract becomes void. Some of
them are: the event being impossible, not happening of event within fixed time,
agreements contingent on impossible events and on the conduct of a living
person.

Thanks & Regards