“Contingent contract” defined.
A “contingent contract is a contract to do or not to do something, if some event, surety to such contract, does or does not happen.
Illustration
A contracts to pay B Rs. 10,000 if Bs house is burnt. This is a contingent contract.
Contracts are of various types. People can enter into numerous types of agreements for the performance or nonperformance of specific acts. Contracts can be classified as either absolute or contingent. Let us take a closer look at contingent contracts.
Contingent Contracts
An absolute contract is one in which the promisor performs the agreement without any conditions. Contingent contracts, on the other hand, require the promisor to satisfy his obligations only if specific conditions are met.
If you look at insurance, indemnity, and guarantee contracts, they all have one thing in common: they impose an obligation on the promisor if an event that is ancillary to the contract occurs or not.
For example, in a life insurance contract, the insurer pays a set amount if the insured dies under specified conditions. The insurer is not called into action until the insured’s death occurs. This is a contingent contract.
Section 31 of the Indian Contract Act, 1872 defines contingent contracts as follows: “If two or more parties enter into a contract to do or not do something, and an event collateral to the contract does or does not happen, then it is a contingent contract.”
For example, Sikander, a private insurer, enters into a contract with Alexander to provide fire insurance for Alexander’s home. According to the clauses, Sikandar undertakes to pay Alexander Rs 5 lakh if his house burns down in exchange for a Rs 5,000 annual premium. This is a contingent contract.
The burning of the house is neither a performance under the contract nor a consideration. Sikander becomes liable only when the collateral incident occurs.
