CONTINGENT CONTRACTS UNDER INDIAN CONTRACT ACT- ALL YOU NEED TO KNOW
Contracts are of different types. Since people can get into various kinds of agreement for performance or non-performance of certain acts. One way of understanding contracts is by dividing them into two types: Absolute and Contingent. Let us take a detailed look at contingent contracts.
The term ‘contingent’ suggests that every other thing or reality relies on an event or situation. The ‘contingent contract’ implies that the enforceability of that contract is directly dependent on an occasion occurring or not occurring. In the Indian Contract Act , 1872, the term was used to mean conditional.
To understand the real meaning of the contingent contract, we will divide the contingent contract into two words, “contingent” and “contract”. The contingent is the opposite meaning of absolute and here Absolute is, in which we are fully sure or there is no condition is made to make the contract and the contract is which fulfils the essentials of a valid contract. It means that the contingent contract’s performance depends upon the happening or non-happening of an uncertain event (which is not fixed).
Essential elements of the contingent contract
Depends on happening or non-happening of a certain event
The contract is contingent on the happening or the non-happening of a certain event. These said events can be precedent or subsequent, this will not matter. Say for example Peter promises to pay John Rs 5,000 if the Rajdhani Express reaches Delhi on time. This is a contingent event.
The event must be collateral
The event must be collateral, i.e., random to the contract. An event that is neither a performance directly pledged as part of the contract, nor the entirety of the consideration for a promise is a collateral event.
Performance of the contract must be conditional
The condition of the contingent contract must depend upon the future and uncertain events. If the performance depends upon the future event but the event is sure to happen, the contract is not contingent.
The occurrence of the event must be uncertain.
The significant part of a contract contingent on the happening of an event is that the occurrence of the concerned event must be uncertain.
The event on whose occurrence the contract will get enforced must occur in the time ahead(i.e. future).
Uncertainty on the event collateral to the contract is a crucial part of this contract. If the concerned event is certain to happen, it will not be considered a contingent contract.
Characteristic of Contingent contracts
- The uncertainty of events has significance in a contingent contract. The uncertainty means that there should be no surety on the happening or non-happening of an event.
- A contingent contract cannot be enforced unless the specified event takes place.
- If the event on which the contract is based becomes impossible, then the contract becomes void.
- A contract based upon the non-happening of an event becomes enforceable only when the event becomes impossible.
- The event must be collateral, i.e., incidental to the contract. An event which is “neither a performance directly promised as part of the contract, nor the whole of the consideration for a promise” is known as collateral event.
Advantages of Contingent Contracts
- The other party enjoys the benefit if the contract comes into favour.
- It can limit our losses that could happen if the contract fails to fulfil the conditions.
- It makes the trust between the parties.
- The parties can fix the negotiation before the performance of the contract.
- It helps to reduce the risk of parties.
- The performance of the contract can be cancelled on the happening or non-happening or uncertain event.
Conclusion
Contingency means a possible future event with an uncertainty of its happening, and the performance of a contingent contract directly gets based on such uncertain future possible event. The possibility of the event is requisite because if the event becomes impossible and the event doesn’t happen, then there will be no point of dependency.
