Contingent Contract

• An absolute contract is one where the promisor performs the contract

without any condition. Contingent contracts, on the other hand, are the
ones where the promisor performs his obligation only when certain
conditions are met.
• If you look at the contracts of insurance, indemnity or guarantee, they
have one thing in common – they create an obligation on the promisor if
an event that is collateral to the contract does or does not happen.
• For example, in a life insurance contract, the insurer pays a certain amount
if the insured dies under certain conditions. The insurer is not called into
action until the event of the death of the insured happens. This is a
contingent contract.
Contingent Contract
• Section 31 of the contract act defines a contingent contract as
follows: 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.
• Thus it is a contract , the performance of which is dependent upon,
the happening or not-happening of an uncertain event, collateral to
such contract.
• Ex A contracts to indemnify B upto Rs 20,000 in consideration of B
paying Rs 1000 annual premium, if B’s factory is burnt. This is a
contingent contract.
Essentials of Contingent Contract
• 1. The performance of such a contract depends upon the happening
or non happening of some future event.
• 2. The future uncertain event is collateral.
Rules regarding the performance of
contingent contracts
• Rules regarding the performance of contingent contracts, as contained in
Sections 32 to 36 of the Contract Act, are given below:
• 1. 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 the event becomes impossible, such contracts become
void(Sec. 32).
• Ex. A makes a contract with B to buy B’s horse if A survives C. The
contract cannot be enforced by law unless and until C dies in A’s lifetime.
• Ex. A contracts to pay B a sum of money (as loan) when B ,marries C. C
dies without being married to B. The contract becomes void.
• 2. 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 ( Sec 33).
• Ex. A agrees to pay B a sum of money( as insurance) if a certain ship does
not return. The ship is sunk. The contract can be enforced when the ship
sinks.
• 3.If a contract is contingent upon how a person will act at an unspecified
time, the event shall be considered to become impossible when such
person does something which renders it impossible that he should so act
within any definite time, or otherwise than under further
contingencies(Sec.34).
• Ex. A agrees to pay B a sum of money if B marries C. C marries D. The marriage
of B to C must now be considered impossible. If in future B marries( widow of
D) the contract will not revive because that came to an end when C married D.
• 4. 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.
• Ex.A Promises to pay B a sum of money if a ship returns within a year. The
contract may be enforced if the ship returns within the year and becomes void
if the ship is burnt within a year or if the ship does not return within the year.
• Q- Difference between Contingent contract and wagering agreement.
 DISCHARGE OR TERMINATION OF CONTRACTS

A contract is said to be discharged or terminated when the

rights and obligations arising out of a contract are extinguished.

Contracts may be discharged or terminated by any of the

following modes:
a) performance, i.e., by fulfilment of the duties undertaken
by parties or, by tender;
b) mutual consent or agreement.
c) lapse of time;
d) operation of law;
e) impossibility of performance; and
f) breach of contract.
 Performance of Contracts

Section 37 of the Act provides that the parties to a contract must

either perform or offer to perform their respective promises,
unless such performance is dispensed with or excused under the
provision of the Indian Contract Act, or any other law.

In case of death of the promisor before performance, the

representatives of the promisor are bound to perform the promise
unless a contrary intention appears from the contract.

X promises to deliver a horse to Y on a certain day on payment of

Rs 1,000. X dies before that day. X’s representatives are bound to
deliver the horse to Y and Y is bound is pay ` 1,000 to X’s
representatives.
 Tender of Performance (Section 38)

In case of some contracts, it is sometimes sufficient if the

promisor performs his side of the contract. Then, if the
performance is rejected, the promisor is discharged from further
liability and may sue for the breach of contract if he so wishes.
This is called discharge by tender.

To be valid, a tender must fulfil the following conditions

a) it must be unconditional;
b) it must be made at a proper time and place;
c) it must be made under circumstances enabling the other party
to ascertain that the party by whom it is made is able and
willing then and there to do the whole of what he is bound, to
do by his promise;
 Discharge by Mutual Agreement or Consent

A contract may be discharged by the agreement of all parties to

the contract, or by waiver or release by the party entitled to
performance.

The methods stipulated under Sections 62 and 63 of the Indian

Contract Act for discharging a contract by mutual consent are:
1) Novation
2) Alteration
3) Rescission
4) Remission
5) Waiver
 Discharge by Lapse of Time

The Limitation Act lays down that in case of breach of a contract

legal action should be taken within a specified period, called the
period of limitation, otherwise the promise is debarred from
instituting a suit in a court of law and the contract stands
discharged.

For example, where a debtor has failed to repay the loan on the
stipulated date, the creditor must file the suit against him within
three years of the default. If the limitation period of three years
expires and he takes no action he will be barred from his remedy
and the other party is discharged of his liability to perform.
 Discharge by Operation of Law

Discharge under this head may take place as follows:

a) By merger( When an inferior right contract merges into a
superior contract, the former stands discharged
automatically)
Ex: Where a man holding property under a contract of
tenancy buys the property, his rights as a tenant are merged
into the rights of ownership and the contract of tenancy
stands discharged by operation of law.
b) By the unauthorized alteration of items of a written
document(without the consent of other party,makes the contract
void)
c) By insolvency
d) Death. Where the contract is of personal nature,the death
of the promisor discharges the contract. In other contracts
the rights and liabilities of the deceased person pass on to the
Discharge by Impossibility or Frustration (Section 56)
a) Supervening Impossibility
b) Discharge by Supervening Illegality
a) Supervening Impossibility
 
A contract will be discharged by subsequent or supervening
impossibility in any of the following ways:
a) Where the subject matter of the contract is destroyed without
the fault of the parties, the contract is discharged. Ex. Music
hall case of Taylor vs Caldwell

b) When a contract is entered into on the basis of the continued

existence of a certain state of affairs, the contract is
discharged if the state of things changes or ceases to exist.

c) Where the personal qualifications of a party are the basis of

the contract, the contract is discharged by the death or
physical disablement of that party.
(b) Discharge by Supervening Illegality(Change in law)
 
A contract which is contrary to law at the time of its formation is
void. But if, after the making of the contract, owing to alteration
of the law or the act of some person armed with statutory
authority the performance of the contract becomes impossible,
the contract is discharged.

This is so because the performance of the promise is prevented

or prohibited by a subsequent change in the law.

Example
A enters into contract with B for cutting trees. By a statutory
provision cutting of trees is prohibited except under a licence
and the same is refused to A. The contract is discharged.
 Cases in which there is no supervening impossibility
 
In the following cases contracts are not discharged on the
ground of supervening impossibility –
a) Difficulty of performance: The mere fact that performance is
more difficult or expensive than the parties anticipated does not
discharge the duty to perform.

b) Commercial impossibilities do not discharge the contract. A

contract is not discharged merely because expectation of higher
profits is not realised.

c) Strikes, lockouts and civil disturbance like riots do not terminate

contracts unless there is a clause in the contract providing for non-
performance in such cases.

Supervening impossibility or illegality is known as frustration under

English Law.
 Discharge by Breach
 
Where the promisor neither performs his contract nor does he
tender performance, or where the performance is defective, there
is a breach of contract.

The breach of contract may be

(i) actual; or
(ii) anticipatory.

The actual breach may take place either at the time the
performance is due, or when actually performing the
contract.

Anticipatory breach means a breach before the time for the

performance has arrived.
REMEDIES FOR BREACH

REMEDIES FOR BREACH OF CONTRACT

In case of breach of contract, the injured / aggrived

party may:
1) Recission of Contract
2) Suit for Damages
3) Suit for Restitution
4) Suit for specific performance
5) Suit for injunction
6) Suit upon quantum meruit