Contingent Contract

Introduction:

The Indian Contract Act, 1987 defines Contract under section 2(h). it says that ‘A contract is an agreement which is enforceable by law’. Thus, a contract essentially consists of an agreement and its enforceability by law.

For every contract, there should be an agreement that is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object. The agreement should not be declared void hereby to form a contract. The definition given in the Indian contract act is based on sir Pollock’s definition of contract which says that every agreement and promise enforceable by law is contract.

What is Contingent Contract?

The word contingent means ‘subject to chance’. Thus, Contingent Contract means to do or not to do something, if some event, collateral to such contract does or does not happen. Section 31 of Indian Contract Act, 1872 defines the Contingent Contract. For example, A contracts to pay Rs. 1000 to B, if B’s house is burnt. 

Legal provisions:

Section 31 to 36, all talk about the contingent contract.

Section 32 talks about the “Enforcement of contracts contingent on an event happening”- contingent contracts to do or not to do anything, if an uncertain future event happens cannot be enforced by law unless and until that event has happened. if event becomes impossible then such contracts become void.

For example:

a.)   A makes a contract with B to buy B’s horse, if A survives C. The contract will enforceable only when C dies in A’s lifetime.

b.)A contracts to pay B a sum of money when B marry to C. C dies without being married to B. Thus, this contract become void.

Section 33 talks about the “Enforcement of contracts contingent on an event not happening”- Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before. 

For example:

a.)   A contracts to pay a sum of Rs. 1000 to B, if a bus does not return to the bus stand. Bus got hit by a truck, thus, the contract will enforce.

b.)  Y agrees to pay the amount of money to Z, if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

Section 34 talks about the “When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.”—If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.

Example:

A agrees to pay money to B if B marries C but, C marries D. so the B and C’s marriage is impossible, but if D dies, so C can marry B afterwards.

Section 35 says that “When contracts become void, which are contingent on happening of specified event within fixed time”-Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.

Section 36 says that “Agreements contingent on impossible event void”-Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. 

Case Law:

Chandulala vs. Commissioner of Income Tax, 1966

On June 23, 1959, a policy called "Children's Deferred Endowment Assurance" for a sum of Rs. 50,000/- was issued by the Life Insurance Corporation of India. The proposer was Harjivandas Kotecha, the father of the and the life assured was that of the assesse. The premium payable in respect of the policy was Rs. 1,925/ per annum. That amount was paid as premium out of the taxable income of the assesse. In the course of the assessment for the assessment year 1960-61, the assesse claimed rebate on the insurance premium of Rs. 1,925/ under the provisions of section 15(1) of the Income-tax Act. The Income-tax Officer rejected the claim on the ground that under the said policy the life of the minor assesse had not been assured. The Appellate Assistant Commissioner agreed with the Income- tax Officer and held that the claim of the assesse was rightly rejected. The assessee took the matter in further appeal before the appellate Tribunal but the appeal was dismissed.

The High Court of Gujarat answered the reference in favour of the respondent. It held that the contract of insurance with the Life Insurance Corporation was entered into by the father of the assesse and under the terms thereof the contract was to become the assesse’s contract only by his adopting it on attaining majority. The High Court further held that on the true interpretation of the terms of the contract, even if the minor were to be alive on the deferred date it was the assessee’s father who was entitled to receive the cash option unless the assesse adopted the contract as his own. The High Court observed that the real contracting parties were the father of the assesse and the Life Insurance Corporation and it was only under certain contingency on the happening of which the contract was to become the contract of the assessee.

Conclusion:

The contingent contract mentioned in section 31 to 36 of The Indian Contract Act, 1872 talks about the contract for happening or non-happening of certain thing in future. a contingent contract is something totally different. Contingent contracts suspend the performance till the happening of an uncertain and futuristic event.

BY: ISHITA SHARMA