The term “contingent” literally means “Dependent on or conditioned by something else”. In Contract Laws, contingent contracts ignite curiosity among those who know about wagering being illegal. Thus, understanding what constitutes a Contingent Contract under Indian Contract Act, 1872 is important. The contingency is a specific event, which may or may not happen, and the enforceability of such contract depends upon the said event. Let us dig through the Indian Contract Act to understand the contingency in Contingent Contracts, which lay the foundation of insurance contracts.
Contingent Contract under Indian Contract Act
Chapter 3 of the Indian Contract Act, 1872 provides for Contingent Contracts. Section 31 of the Act defines what constitutes contingent contracts in India. Sections 32 to 36 address the various aspects related to contingent contracts.
As per Section 31, a contract to do or refrain from doing something in connection with a specific event collateral to such contract. In other words, the performance of contract depends upon a specific event, requiring you to do or not to do something when the event happens.
Insurance Contracts are the best examples of contingent contracts. Because in such cases, Insurance companies enter a contract with the other parties, pledging to pay a specific sum in case a contingent event happens. Here, as the term suggests, there is contingency, or possibility of whether the event may or may not happen. Whether it is a medical insurance against unexpected health hazards, or property insurance protecting financial interest against unexpected fire incidents or earthquakes.
Enforcement of Contingent Contracts on Event Happening
Section 32 of the Act addresses the enforceability of contingent contracts when the said event happens. It states that a contract contingent upon the happening of a future event cannot be enforced unless the event happens. For better understanding, take an example of a health insurance. A healthy person with no illness, health checkups, medication or hospitalisation, cannot claim against his/her health insurance. Any claim against medical insurance can be made if the event happens, and the person falls ill.
Enforcement of Contingent Contracts on Event not Happening
Section 33 related to contingent contracts in Indian Contract Act, 1872 specifies when a contract may be enforced for an impossible event. It states that contingent contract to do or refrain from doing something, contingent to a future even not happening, can be enforced when the said event becomes impossible. When there is a possibility of such an event happening, the contingency remains, and thus, such a contract cannot be enforced.
An example can be a contract when an insurance company contracts with a shipping party to compensate them if the ship does not return. If the ship sinks, the contract can be enforced.
Contingent Contract, impossibility and human conduct
Section 34 of the Indian Contract Act deals with a different scenario wherein the future event is contingent upon the conduct of a person. If the said event is contingent upon the conduct of a person at an unspecified time, the event may be regarded as impossible if conduct is otherwise within a definite time.
A weird example is a contract where Akash contracts with Vikas to pay him a certain amount if he marries Shweta. Vikas ended up marrying Ishita. Now, the contract shall be considered impossible, though the possibility of Vikas marrying Shweta remains possible in case of divorce or Ishita’s death. However, the law lays that the said contract is impossible after Vikas’s first marriage and deemed impossible.
Time Bound Contingent Contracts
Section 35 lays down two different scenarios related to contingent contracts in Indian Contract Act, 1872.
The first one is contracts contingent upon a specific event within a fixed time turn void. If a specific uncertain event happens within a fixed time. If the said event does not happen within the specified time period, or the event becomes impossible, it becomes void.
The other scenario is about contingent contracts which may be enforced when the said event does not happen within fixed time. If an uncertain event is assigned a contingency for enforcement of a contract within a fixed period, and the said period expires, the contract may be enforced when there is confirmation that the said event will not happen.
Examples given are:
(a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.
(b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year
Contingent Contracts for Impossible Events
As can be understood that contingent contracts in Indian Contract Act, 1872 are dependent upon happening or not happening of a specific event. Now what happens when the said event is impossible to happen? The situation is addressed under Section 36 of the Indian Contract Act. It lays about agreement contingent on impossible events to be void. When the event is impossible when a contingent contract is entered, regardless of whether parties are aware or unaware of the impossibility, the contract is void.
For example, if Shirish promises Chetan to pay him Rs 10 lakhs if he marries his daughter Vandana, and Vandana died in an accident when the agreement was made, the said agreement is void.
Conclusion
Everything about contingent contracts under Indian Contract Act reveals that they are dependent upon happening or not happening of a specified event. Where there is time fixed for such an event to happen, and it expires, the contract ends. If the event is impossible to happen, the contract is void. However, if the event happens within the specified time and the contract was contingent upon the happening of that event, it is enforceable.
