Contingent Contracts – Law of Contracts
There are various sorts of contracts depending upon the legitimacy, execution etc. One such set is absolute and contingent contracts depending on happening or non-happening of a specific occasion in the future.
An absolute contract is where the promisor plays out the contract with no condition. Contingent contracts, then again, are where the promisor plays out his commitment just when certain conditions are met. The contracts of insurance, indemnity or guarantee one thing in common – they make an obligation on the promisor if an occasion which is collateral to the agreement does or doesn’t occur. For instance, in a life insurance contract, the insurer pays a specific sum if the insured dies within the time period of the insurance policy. The insurer isn’t called right into it until the occasion of the demise of the insured occurs. This is a contingent contract.
Under Section 31 of the Indian Contract Act, 1872, contingent contracts are characterized 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.”
ESSENTIAL ELEMENTS OF THE CONTINGENT CONTRACT
After looking into the definition of contingent contract under section 31, the essential elements of the contingent contract are as follows:
- There must be a valid contract to do or abstain from doing something:
Section 32 and 33 of the Act discusses authorization of the contingent contract on the occurring or not occurring of the occasions separately. The agreement will be valid just on the off chance that it is tied in with performing or not performing out a commitment. For example: 1. X makes a contract with Y to purchase Y’s cat if X survives Z. This contract can’t be enforced by law except if and until Z dies when X is alive.
For example: 2. X consents to pay Y an amount of cash if a specific boat doesn’t return. The boat is sunk. The contract can be authorized when the boat sinks.
- Performance of the contract must be conditional:
The condition for which a person enters into a contract should be a future occasion, and it ought to be dubious. On the off chance that the exhibition of the contract is subject to an occasion, which is although a future occasion, yet certain and sure to occur, at that point it’ll not be considered as a contingent contract.
- The said event must be collateral to such contract:
The event on whose occurring or non-occurring of the occasion on which the exhibition of the contract is dependent ought not be a piece of the consideration of the contract. The occurrence or non-occurrence of the occasion ought to be collateral to the contract and should exist autonomously.
For example: X enters into a contract with Y and promises to convey 10 books to him. In return Y promises to pay Rs. 2000 upon conveyance. This is not a case of contingent contract since Y’s commitment rely upon the occasion which is a part of the contract (delivery of 10 Books) and not a collateral event.
- The event should not be at the discretion of the promisor:
The occasion so considered concerning contingency ought not in the least be reliant on the promisor. It ought to be absolutely a futuristic and uncertain occasion.
For example: X promises to pay Y, Rs. 10,000 if Y leaves Delhi for London on 31st March 2019. This is a contingent contract. Going to London can be within Y’s will yet isn’t simply his will.
ENFORCEMENT OF CONTINGENT CONTRACTS:
- Enforcement of contract contingent on the happening of an event:
According to section 32 the contingent contracts to do or refrain from doing something if an unsure future event occurs. In any case, the contract can’t be implemented by law except if the event happens. On the off chance that the event becomes incomprehensible, such contracts become void.
For example: X promises to pay Y, Rs. 100,000 on the off chance that he marries Z, the prettiest young lady in the area. This is a contingent contract. Shockingly, Z dies in an auto collision. Since the happening of the incident, at this point conceivable, the contract is void.
- Enforcement of contract contingent on an event not happening:
According to section 33 the contingent contracts to do or refrain doing something if am unsure or uncertain future event doesn’t occur can be implemented when the occurrence of that event gets impossible. On the off chance that the event happens, at that point the contingent contract is void.
For example: X promises to pay Y an amount of cash if a specific boat doesn’t return. The boat is sunk. The contract can be implemented when the boat sinks. Then again, on the off chance that the boat returns, at that point the contract is void.
3.When an occasion on which agreement is unforeseen to be considered inconceivable on the off chance that it is the future direct of a living individual:
As per segment 34, in case an agreement is needy upon how a person who will act at a future time, the occasion will be seen as unbelievable or unimaginable when such individual does anything which makes it unlimited for the occasion to occur.
For instance: X agrees to pay Y, Rs. 100,000 if Y weds Z. In any case, Z weds A. The marriage of Y to Z should now be seen as unfathomable, regardless of the way that it is possible that A may bite the dust and that Z thusly weds Y.
- Contracts dependent upon an occasion occurring inside the fixed time:
As indicated by segment 35(para 1), unexpected agreements to do or not to do anything if a future questionable occasion happens inside a fixed time. Such an agreement is void if the occasion doesn’t happen and the time slips or passes. It is also void if before the time fixed, the event of the occasion gets outlandish.
For instance: X vows to pay Y a measure of money if a particular boat returns before first April 2019. The arrangements may be approved if the boat returns inside the fixed time. On the other hand, becomes void if the boat sinks.
5.Contracts dependent upon an occasion not occurring inside the fixed time:
As indicated by area 35(para 2), unexpected agreements to do or not to do anything if an unsure occasion doesn’t happen inside a fixed time may be actualized by law when the fixed time has ended, and such occasion has not happened, or before the time fixed has passed, in the event that it turns into sure that such occasion won’t occur.
For instance: X vows to pay Y a measure of money if a particular boat doesn’t return before 31st March 2019. The arrangement may be upheld if the boat doesn’t return before 31st March 2019. Also, if the boat is singed before the given time, the agreement is maintained by law since the return is unfathomable.
- Contract unexpected of outlandish occasion void:
As per area 36, if an agree to do or not to do relies upon the unfathomable occasion, by then such understanding is void, if the trouble of the occasion is known to the gatherings to the arrangement when it is made.
For instance: X vows to pay Y, Rs 500 if two straight lines should encase a space. The arrangement is void.
Business APPLICATIONS OF CONTINGENT CONTRACTS:
- Protection is an agreement to achieve something if the future occasion happens that will be shrunk by the gatherings and danger will be taken by the offeror. In all Insurance like Life Insurance, Marine Insurance, Fire Insurance, and various Insurances, the offeror vows to confront the test of the offeree against the episode to do or not to achieve something and for that the offeree agrees to pay a particular measure of money.
- The unforeseen agreements can be used in the agreement of assurance and furthermore as the agreement of guarantee. Unexpected certifications generally are used when a provider doesn’t host a relationship with a counter-gathering.
- We can use an unexpected agreement in arrangement. Unforeseen agreements ordinarily happen when arranging parties neglects to concur.
- We can use the unexpected agreement in consolidations and acquisitions (M&A) as well. Contingent on the M&A deal, unexpected portions, for instance, acquire outs, vender notes, and purchaser stock may be fundamental for the Seller’s profits. After the understanding is done, these unforeseen portions will require steady contact among purchaser and vender.
- It can moreover be used in the agreement of repayment.
What is characterized as ‘unexpected agreement’ is unmistakable in English law as ‘contingent agreement’. For an unforeseen agreement, there is a sure occasion which ought to be fulfilled. The term of these arrangement are sure and depend upon the occurrence or non-occurring of a future occasion.
Author: PRISHITA SARAIWALA,
KIIT SCHOOL OF LAW / 2ND YEAR