What is a Contingent Contract?
A contingent contract refers to a contract whose performance or non-performance depends on the happening or non-happening of a particular event. It means that the performance of the contract does not depend on the mere will of the promisor. Rather, the performance of the contingent contract becomes due only upon the occurrence or non-occurrence of some future uncertain event.
In simple terms, contingent contracts are conditional contracts
A enters into a contract with B, that the former will pay the latter Rs. 5000 if it rains heavily in their city. This is a contingent contract.
Prerequisites for Contingent Contract
- Valid contract: The contract to perform or not perform something must be legally valid, i.e. it should cover all the elements of a valid contract.
- Dependence on Future Event: The accomplishment of such contracts depends upon the occurrence and non-occurrence of some event.
- Uncertain Event: The event should not be certain.
- Collateral Event: The event on which performance depends, is subordinate to the contract. This means that it does not form part of the reciprocal promises that constitute a contract.
- Reciprocal promises do not fall in the category of contingent contract as they are not said to be collateral to one another.
- These do not rely upon any external event. That is to say, they are conditional on the voluntary act or future act of one of the parties to the contract or third person.
- When agreements are conditional upon an impossible event, it is void.
Enforcement of Contingent Contract
Contingent contracts are completely valid. However, their enforceability is conditional upon the happening or non-happening of the future uncertain event.
Moreover, when the event takes place, the contract relies on the same footing as if it is has been created formally and without reference to any conditions. The enforcement rules of contingent contracts are conditional upon the:
Occurrence of an uncertain future event
Enforcement of such contracts lies in the happening of the event. That means it that event becomes impossible to happen, the contract turns out as void.
For Example: Joe and James entered into a contract that Joe will pay Rs. 20,000 to James if he marries Jennifer. But Jennifer passes away without being married. In this case, the contract is void.
Non-occurrence of an uncertain future event
The enforcement of these contracts is possible only when the event turns out impossible and not before that.
For Example: Suppose Mike contracts to pay Will a sum of Rs. 5000, if it does not rain on Monday. And it rains heavily on Monday. In this case, the contract is enforceable.
Future act of a living individual
When an uncertain event is the future act or conduct of a person, then that event becomes impossible if the person does something which makes the performance of the contract impossible within a definite time.
For Example: Suppose Cynthia agrees to pay Joana a certain sum of money if Elisha takes Joana to a movie in the coming weekend. All three are friends. And on the said date Elisha is out of town for a week. So, this makes the contract impossible to perform.
Occurrence of an uncertain specified event, within a fixed time
These contracts turn out as void if prior to the expiry of the definite time – the event does not happen or it becomes impossible to happen.
For Example: Suppose Manisha promises to pay Raghu, a certain sum if a certain pandemic ends within a year. In this case, the contract is enforceable only when the pandemic ends within the year. However, it becomes void if the pandemic continues even after a year.
Non-occurrence of an uncertain specified event within a fixed time
These contracts are enforceable only when before the expiry of a specified time – the event does not happen or it is sure that the event will not happen.
For Example: Suppose Steve promises to pay Robin a certain sum if a pandemic ends within a year. In this case, the contract is enforceable only when the pandemic ends within a year or some vaccine is developed which ends the pandemic within the year.
These are void agreements irrespective of the fact that parties are aware of the impossibility of the event or not, at the time when the contract is entered into:
For Example: Vandana agrees to pay Natasha Rs. 5000 if Jayesh becomes the next president of the student union. Jayesh was dead at the time when the contract was made. The agreement is void as Jayesh is already dead which makes the happening of the event impossible.
Basically, a contract is of two types – absolute contract or contingent contract. Absolute contracts are those in which the offeror commits to perform the contract unconditionally, in any case. While a contingent contract is one that is conditional upon the happening or non-happening of a particular event.