Contingent contracts

In one minute

A contingent contract is a contract to do or not to do something if some event, collateral to the contract, does or does not happen. An insurance policy is the everyday example. The insurer pays only if the insured event happens.

Sections 32 to 36 say when such a contract can be enforced and when it becomes void. In exams, the rules for each section and their illustrations earn the marks. In real life they govern insurance, guarantees and conditional sales.

Exam focus

Frequency: Rarely asked
Usually asked as: Long answer (10 to 15 marks)

Legal provision

Section 31: a contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. The Act's illustration: A contracts to pay B Rs 10,000 if B's house is burnt.
Section 32: contracts contingent on an uncertain future event happening cannot be enforced unless and until the event has happened. If the event becomes impossible, they become void.
Section 33: contracts contingent on an uncertain future event not happening can be enforced when the happening of that event becomes impossible, and not before.
Section 34: if the event is the way in which a person will act at an unspecified time, the event is considered impossible once he does anything that makes it impossible for him to act so within any definite time. The same holds if he can act so only under further contingencies.
Section 35: contracts contingent on an event happening within a fixed time become void if the time expires without it, or if it becomes impossible before. Contracts contingent on an event not happening within a fixed time can be enforced when the time expires without it, or when it becomes certain it will not happen.
Section 36: contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility is known to the parties or not.

Meaning and definition

A contingent contract has a promise whose performance waits on an event. Three things mark it. The event is in the future. The event is uncertain. And the event is collateral, meaning it is not the promised act itself.

The contract exists from the start. What waits is the duty to perform.

A promise to pay if a ship returns within a year (section 35)How to read this: read the boxes from left to right on a wide screen, or from top to bottom on a phone. Green marks the moment the promise can be enforced.

A promises B a sum if the ship returns within a yearA contingent contract is made (section 31). Payment waits on the ship.
The ship returns within the yearThe contract may be enforced (section 35, illustration (a)).
The year ends without the ship, or the ship is burnt within the yearThe contract becomes void (section 35, illustration (a)).

Detailed explanation

Step 1: the definition (section 31)

The event must be uncertain and collateral. If an act is simply part of the exchange, it is not a contingent event.

Example. Anand pays a yearly premium on a fire policy for his shop. The insurer promises Rs 5 lakh if the shop is burnt. The fire is a future, uncertain, collateral event. The policy is a contingent contract.

Step 2: event happening (section 32)

The contract cannot be enforced until the event happens. If the event becomes impossible, the contract is void. Illustration (a): A contracts to buy B's horse if A survives C. The contract cannot be enforced unless and until C dies in A's lifetime. Illustration (c): A contracts to pay B a sum when B marries C. C dies without being married to B. The contract becomes void.

Step 3: event not happening (section 33)

The contract can be enforced only when it becomes impossible for the event to happen. Illustration: A agrees to pay B a sum if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

Step 4: the event is a living person's conduct (section 34)

A living person's future conduct can never be proved impossible in advance. Section 34 treats it as impossible once the person does something that rules it out. Illustration: A agrees to pay B a sum if B marries C. C marries D. The marriage of B to C must now be considered impossible, although D may die and C may afterwards marry B.

Example. Kiran promises Mohan Rs 1 lakh if Mohan marries Lata. Lata marries Naresh. Under section 34 the event is now treated as impossible, so the contract becomes void under section 32.

Step 5: a fixed time (section 35)

A time limit adds a cut-off to sections 32 and 33. The illustrations show both sides. A promises to pay B if a certain ship returns within a year. The contract may be enforced if the ship returns, and becomes void if the ship is burnt within the year.

Now reverse the promise: A will pay B if the 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 it.

Step 6: impossible events (section 36)

If the event is itself impossible, the agreement is void from the start, whether the parties knew of the impossibility or not. Illustration (a): A agrees to pay B Rs 1,000 if two straight lines should enclose a space. The agreement is void.

Don't confuse: contingent contract and wager

A contingent contract and a wager both depend on an uncertain future event. A genuine interest in the event separates them.

Point	Contingent contract	Wager
Interest in the event	A genuine interest, apart from the money	None except the stake
The event	Collateral to a real transaction	The whole substance of the agreement
Enforceability	Enforceable, under sections 32 to 36	Void under section 30

Inside the idea. A shopkeeper insures his godown against fire. He owns the godown and has a real interest in it. This is a contingent contract.

Just outside it. Two strangers bet on whether a godown across the road will catch fire. Neither owns it. This is a wager.

Common mistakes

Treating a certain event as contingent. The event must be uncertain.
Mixing up sections 32 and 33. One is enforceable when the event happens, the other when it becomes impossible.
Forgetting that the event must be collateral to the contract.
Calling every promise that depends on an uncertain event a wager. An interest in the event takes it outside section 30.

Apply it

Problem

Anand insures his shop for Rs 5 lakh against fire. Before any fire occurs, the municipality demolishes the shop for road-widening. Can Anand claim the Rs 5 lakh?

Issue. What is the effect on the policy when the event becomes impossible?

Rule. A contingent contract on an uncertain event happening cannot be enforced unless the event has happened. If the event becomes impossible, the contract becomes void (section 32).

Application. The insured event was a fire in the shop. With the shop demolished, a fire there can never happen.

Conclusion. The insurer's promise to pay becomes void on this policy. Anand cannot claim.

Leading case laws

Ramzan v. Hussaini (1990), Supreme Court
Facts. A document said that when the plaintiff redeemed the mortgage on a house, the defendant would execute a sale deed of the house in her favour. The document gave no calendar date for the sale.

Principle. The Supreme Court held the agreement a contingent contract under section 31. It became enforceable once the plaintiff redeemed the mortgage. The missing date was no bar, because the date became certain on redemption.

Why it matters. It shows the rule in section 32: the promise cannot be enforced until the event happens, and then it can.

How to write this answer in the exam

5-mark answer

Define a contingent contract using section 31.
Name the three marks of the event: future, uncertain, collateral.
Give the Act's illustration.
State sections 32 and 33 in one line each.

10-mark answer

Definition in section 31 and its elements.
Section 32 and section 33 with illustrations.
Section 34 and the living person's conduct.
Section 35 and the fixed-time rules.
Section 36 and impossible events.
Comparison with a wager.

Key points to remember

A contingent contract depends on an uncertain event collateral to the contract (section 31).
If the event must happen, the contract is enforceable once it happens and void if it becomes impossible (section 32).
If the event must not happen, the contract is enforceable once the event becomes impossible (section 33).
A living person's own act can make an event impossible (section 34).
A fixed time adds a cut-off (section 35). An impossible event makes the agreement void (section 36).

Quick self-test

1. What is a contingent contract?

A contract to do or not to do something if some event, collateral to the contract, does or does not happen (section 31).

2. When can a contract contingent on an event not happening be enforced?

When the happening of the event becomes impossible, and not before (section 33).

3. What is the effect of a contingent agreement on an impossible event?

It is void, whether or not the parties knew of the impossibility (section 36).