Enforcement of Contingent Contract

The provisions of rules or conditions that are related to the enforcement of a contingent contract are provided under Section 32 to Section 36 of the Indian Contract Act.

1. Enforcement of Contracts Contingent on an Event Happening: As specified in Section 32 of the Indian Contract Act, 1872. According to this rule, a contingent contract might have been based on the happening of an uncertain future event. In this case, the promisor is liable to do or not do the performance if the event happens. However, the contract cannot be enforced by law until the event takes place. If the happening of the event becomes impossible, then the contingent contract will be treated as a void contract.

For example, Nirmal agreed to pay Bimal ₹5,000 if Bimal could win the annual racing competition, but unfortunately, the event got cancelled. Since the subject matter of the contract; i.e., the annual racing competition can’t take place, the contract becomes void.

2. Enforcement of Contracts Contingent on an Event Not Happening: As specified in Section 33 of the Indian Contract Act, 1872 the rule says that a contingent contract might be based on the non-happening of an uncertain future event. In such cases, the promisor is liable to perform or not to perform something if the event does not happen. However, the contract cannot be enforced by law unless the happening of the event becomes impossible. If the event takes place, then the Contingent Contract will be void.

For example, Tim agrees to pay Jim an amount of ₹5,000 if the plane departs from New York to London, but it doesn’t land in London. Here, the contract becomes enforceable only if the plane does not land in London.

3. Contingent upon the Conduct of a Living Person: As specified in Section 34 of the Indian Contract Act, 1872 this rule states that if a contract is contingent upon how a person is going to act at a future time, then the event will be considered impossible when the person does anything which makes it impossible for the event to happen.

For example, Tim agrees to pay Jim an amount of ₹5,000, if Virat Kohli completes his century with a sixer, but Kohli gets out on a duck, which makes the event impossible of completing the century with a sixer.

4. Contingent on happening of Specified Event within the Fixed Time: According to the rules specified in Section 35 of the Indian Contract Act, 1872 there can be a contingent contract wherein a party promises to do or not do something in case a future uncertain event happens within a fixed time. Such a contract is void if the event does not happen and the fixed time as promised lapses. The contract will also be treated as void if before the time fixed, the happening of the event becomes impossible.

For example, Ajit agreed to pay a sum of ₹1,000 to Yogesh if a footballer can complete 100 goals within a year. In case the footballer fails to score 100 goals in a year, this contract will be void as the fixed time agreed has lapsed.

5. Contingent on Specified Event not happening within Fixed Time: As per the rule specified in Section 35 of the Indian Contract Act, 1872. There can be a contingent contract, which might be based on the non-happening of an uncertain future event within a fixed time. In such a case, the promisor is liable to do or not do something if the event does not happen within the said time. Also, the contract can be enforced by the law if the fixed time has expired and the event has not happened before such expiry of time. In case, it becomes certain that the agreed event will not happen before the time has lapsed, then it can be enforced by law.

For example, Tim agrees to pay Jim an amount of ₹5,000 if the plane departs from New York to London but doesn’t land in London within 24 hours. Here, the contract becomes enforceable only if the plane doesn’t land in London within 24 hours. In case, the plane crashes or gets damaged, the contract is enforced by law since the landing is not possible in London.

6. Contingent on an Impossible Event: As per the rule specified in Section 36 of the Indian Contract Act, 1872, if a contingent contract is based on the happening or non-happening of an event that is impossible, then such a contract will be considered as void. This is regardless of the fact that if the parties to the contract are aware of such impossibility or not.

For example, Alia promises Ranveer that she will pay ₹1,00,000 if Ranveer can bring the Moon down to Earth. Since this is impossible and can’t be performed such a contract is void.

Contingent Contract means the enforceability of that particular contract directly depends upon the happening or non-happening of an event. The pervasive nature of uncertainty affects every business decision and contract. Business uncertainty can have a significant effect on the business due to situations that can’t be foreseen or measured. In such a situation, a Contingent Contract can be extremely helpful for creating value in negotiation by minimizing the degree of uncertainty. In many contracts, parties are required to make forecasts and assumptions about the future; say, Will fuel-oil prices rise or stay at the same level? Will the market rise in the future? Will material arrive on time for further construction, and so on?

Geeky Takeaways:

• The word contingent refers to when an event or situation is contingent; i.e., it depends on some other event or fact.
• These contracts are entered by both parties to minimize the risk associated.
• These contracts are those where the promisor performs his obligation only when certain conditions are met.
• Some examples of Contingent contracts include contracts of insurance, indemnity, and guarantee.