It is important to comprehend the meaning of “contract” and how it is used to formulate trade, commerce, transactions, and commercial relationships in order to comprehend the concept of contingency contracts. According to Section 2(h) of the Indian Contract Act, 1872 (henceforth referred to as the “Act”), an agreement is a necessary component of a contract, and it must also be legally enforceable.
The execution of a voluntarily constituted civil duty is contemplated under contract law. Even while certain agreements meet all the criteria for a contract, such as a proposal, acceptance, consideration, etc., they are not legally binding.
section 31 of indian contract act
- The term “Contingent Contract” is defined as follows in Section 31 of the Indian Contract Act, of 1872:
- “A contract that is contingent on the occurrence or non-occurrence of a collateral event” is defined as such.
- In simple terms, contingent contracts are those in which the promisor agrees to fulfil his obligations only when a set number of requirements are satisfied. Contingent contracts include those involving guarantees, indemnity, and insurance.
contingent contract example
- A contract that stipulates payment in the event that a structure is destroyed by fire is considered dependent due to its ambiguous character.
- A agrees to give B Rs 50,000 in the event that B’s shop burns down. This is a contingent contract.
contingent contract: Conditions
For a contract to be deemed valid, contingent requirements must be satisfied.
- First, at the moment the contract is made, the occurrence or condition must be unclear.
- Second, the occurrence or condition mustn’t be something that the contract’s parties can influence.
- Lastly, the circumstance or occurrence must not be unlawful.
contingent contract: Important Ingredients
The important ingredients for a contract to be considered contingent contract under the Indian contract act are as follows:
- A contingent contract will only be considered enforceable in the event that one of the contract’s collateral events happens or does not.
- For a contract to be considered contingent, a condition must exist. According to Sections 32 and 33 of the Indian Contract Act, the fulfilment of collateral requirements is a prerequisite for the enforcement of a contingent contract.
- Only when the event described in a contract is a future occurrence that could or might not occur will it be deemed contingent.
- A contingent contract is dependent on an event happening or not. This must be incidental to the agreement and not count against the consideration specified in the agreement. The contingency needs to happen on its own.
- The promisor’s will or desire alone cannot control the occurrence.
contingent contract: When it Becomes Void?
- Section 32 of the Indian Contract Act: The contract is void if the occurrence that makes the agreement impossible to fulfil materializes.
Example: A agrees to give Ram money once B marries C. C passes away before marrying B. The agreement is null and void.
- Section 35 of the Indian Contract Act: A contingent contract to perform or not to do something, if a specified uncertain event occurs within a given time, is void if the event has not occurred by the end of the time fixed or if it becomes impossible to occur before the time fixed.
Example: X guarantees to reimburse Y if a specific ship comes back within a year. If the ship burns down during the year, the contract is null and void.
- Section 34 of the Indian Contract Act: When someone does something that makes it impossible for them to act in a certain way within a set amount of time, or in any other way than under further contingencies, the future event that the contract is contingent on, that is, the way in which they will act at an unspecified time, becomes impossible.
- Section 36 of the Indian Contract Act: It states that any contingent agreements to do or not do anything are null and void if an impossible occurrence occurs, regardless of whether the parties to the agreement were aware that the event would be impossible at the time the agreement was established.
Example: If Y marries X’s daughter P, who was deceased at the time of the arrangement, X will give Y Rs. 10,000. The contract is null and void.
In India, contracts known as contingent contracts are those in which one or both parties’ performance is contingent upon the fulfilment of an unforeseen circumstance or event in the future. They become void if they are unable to be carried out and are only enforceable if the contingent event or condition is disclosed to the parties at the time the contract is formed. It’s critical to separate wagering contracts, which are unenforceable in India, from contingent contracts.
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