Contingent Contract Under Indian Contract Law

What is a Contingent Contract?

A contingent contract is a type of contract where the performance depends on the occurrence or non-occurrence of a future uncertain event. These contracts are legally recognized under Section 31 to 36 of the Indian Contract Act, 1872.

Section 31 of the Indian Contract Act defines it as: “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.”

Simple Example:

A agrees to pay B ₹1 lakh if B's house, currently insured, is destroyed by fire. This is a contingent contract, dependent on an uncertain event — the house catching fire.

Essentials of a Contingent Contract

For a contract to qualify as contingent under Indian law, the following conditions must be satisfied:

1. Future Uncertain Event

The event must be uncertain and happen in the future. If the event is bound to happen (e.g., sunrise), it’s not a contingent contract.

2. Collateral Event

The event must be collateral to the contract. It should not form the core obligation but should trigger the obligation.

3. Event Should Be Independent

The uncertain event should not be directly controlled by the promisor or promisee. It must be independent of the parties' will.

4. Enforceability Dependent on Event

The enforceability of the contract depends entirely on whether or not the event occurs.

Types of Contingent Contracts

Contingent contracts can be broadly categorized into the following types:

1. Contract on the Happening of an Event

A contract becomes enforceable only if a certain event happens. 

Example: A agrees to buy B’s car if A wins a lottery.

2. Contract on Non-Happening of an Event

A contract is enforceable only if a certain event does not happen. 

Example: A agrees to pay B ₹10,000 if a certain ship does not return.

3. Contracts Dependent on the Act of a Third Party

Performance depends on a third party’s decision or action. 

Example: A agrees to buy B’s property if the government grants approval.

Key Case Laws on Contingent Contracts

N.P.O. v. Muthuraja (2000)

The court ruled that when a contract is dependent on a future uncertain event (government approval), it qualifies as a contingent contract and is not enforceable until the event occurs.

Venkata Subbarao v. Koteswara Rao (1927)

This case emphasized that if the event is not collateral but forms part of the core promise, the contract is not contingent, but absolute.

Enforcement of Contingent Contracts

Section 32

Contracts Contingent on Happening of Event

The contract is enforceable only when the event happens.

Section 33

Contracts Contingent on Non-Happening of Event

Such contracts can be enforced when the event becomes impossible.

Section 34

Event Dependent on Third Person’s Will

The contract is enforceable only when that third party performs or refuses to act.

Section 35

Contracts Based on Impossible Events

If the event becomes impossible, the contract becomes void.

Commercial Significance of Contingent Contracts

Contingent contracts are crucial in many commercial and corporate scenarios, especially where outcomes are uncertain:

• Insurance Contracts - Payments depend on an uncertain event (accident, fire, death, etc.)

• Construction Projects - Contracts dependent on government approvals or clearances.

• Business Acquisition Agreements - Deals contingent on regulatory approvals, due diligence reports, or board approvals.

• IPO Underwriting Agreements - Contingent on minimum subscription or SEBI approval.

• Performance-Based Bonuses - Employment contracts may offer bonuses contingent on performance metrics.

Contingent vs. Conditional Contracts – Key Differences

Basis	Contingent Contract	Conditional Contract
Definition	Based on an uncertain external event	Based on internal terms and conditions
Governed by	Sections 31-36 of Indian Contract Act	General contract law
Example	A will pay B if the ship arrives safely	A will pay B when B delivers goods on time

When Contingent Contracts Become Void

Under Section 36, if the event on which the contract depends becomes impossible, the contingent contract becomes void.

Example: A agrees to pay B if a certain ship returns. The ship sinks — the contract is void.

Conclusion

Contingent contracts are an essential tool in business, finance, insurance, and real estate. They allow parties to manage risk and uncertainty by deferring obligations until certain events occur. Governed by Sections 31 to 36 of the Indian Contract Act, 1872, these contracts ensure that parties are protected and only held liable when the triggering conditions are met.

Understanding the structure and enforceability of contingent contracts is not just important for legal professionals but also entrepreneurs, investors, and corporate managers handling dynamic, high-stakes agreements.

FAQs – Contingent Contract in Indian Law

Q1: What is a contingent contract in simple terms?

A contract that is enforceable only after the happening or non-happening of a future uncertain event.

Q2: Is an insurance policy a contingent contract?

Yes, most insurance contracts are contingent upon uncertain events like accidents, death, or natural disasters.

Q3: Is consideration required in a contingent contract?

Yes, like any valid contract, contingent contracts must have lawful consideration.