Contingent Contract
What is a Contingent Contract?
According to the provisions of Section 31 of the Indian Contract Act, 1872, 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. Under contingent contracts, the enforceability is directly dependent on the occurrence or non-occurrence of an event.
Are Insurance Contracts also Contingent Contracts?
Yes, Insurance Contracts are also contingent contracts. Under Insurance Contracts, the subscribed individuals will need their insurance companies to compensate them only when the subject matter whatever they have insured is either lost or damaged. Until this happens, the insurance company doesn’t owe any obligation to the subscriber.
What are the essential elements of Contingent Contracts?
Essential elements of a Contingent Contract are as follows:
- Based on the happening or non-happening of an event.
- Performance of the contract shall be conditional.
- The event should be collateral to the contract.
- The event should not be a mere will of the promisor.
What are the Rules of Enforceability of Contingent Contracts?
Rules of enforceability of contingent contracts are as follows:
- Enforcement of contracts contingent on an event happening.
- Enforcement of contracts contingent on an event not happening.
- A contract would cease to be enforceable if it is contingent upon the conduct of a living person when that living person does something to make the ‘event’ or ‘conduct’ impossible to happen.
- Contingent on the happening of specified events within the fixed time.
- Contingent on a specified event not happening within the fixed time.
- Contingent on an impossible event.
What is the difference between Contingent Contracts and Wagering Agreements?
As per section 31 of the Indian Contract Act, a Contingent contract is defined as an agreement where the performance of the contract is dependent on some happening or non-happening of events. Whereas, a Wagering agreement is an agreement between the two parties in which money is payable by the second party to the first at the occurrence of an uncertain event, and the first party will pay the money if that event does not occur.
Contingent Contract: Meaning, Elements and Enforcement
Contingent Contract means the enforceability of that particular contract directly depends upon the happening or non-happening of an event. The pervasive nature of uncertainty affects every business decision and contract. Business uncertainty can have a significant effect on the business due to situations that can’t be foreseen or measured. In such a situation, a Contingent Contract can be extremely helpful for creating value in negotiation by minimizing the degree of uncertainty. In many contracts, parties are required to make forecasts and assumptions about the future; say, Will fuel-oil prices rise or stay at the same level? Will the market rise in the future? Will material arrive on time for further construction, and so on?
Geeky Takeaways:
- The word contingent refers to when an event or situation is contingent; i.e., it depends on some other event or fact.
- These contracts are entered by both parties to minimize the risk associated.
- These contracts are those where the promisor performs his obligation only when certain conditions are met.
- Some examples of Contingent contracts include contracts of insurance, indemnity, and guarantee.
Table of Content
- What is a Contingent Contract?
- Essential Elements of a Contingent Contract
- Enforcement of Contingent Contract
- Conclusion
- Contingent Contract- FAQs