Among the major features of contingent contract is the dependency of its performance on the happening or non-happening of an uncertain event, collateral to the contract.

What Is a Contingent Contract?

A contract which is contingent or dependent upon the occurrence or nonoccurrence of some event is called a contingent contract. Insurance contracts are good examples of contingent contracts where the insurance company is required to compensate the policy holder only if a specified future event (accident, hospitalization, etc.) happens.

Although a contingent contract is based upon an absolute promise to do something in the case of a specific future event, the promise is conditional in the sense that the party is liable to perform only if the said event happens (or does not happen).

Based upon the conditions, contracts can be broadly classified into two types:

  • Absolute Contracts: An absolute contract has no condition and it must be performed irrespective of the circumstances.
  • Contingent Contracts: A contingent contract contains a condition which makes the parties liable to perform the obligations only if the event, collateral to the contract, happens.

The parties to a contingent contract must perform their duties if the imposed condition is met. The contract becomes void if the condition is not met. Thus, contingent contracts are meant to be performed only under specific circumstances.

All types of insurance, indemnity, and guarantee contracts are considered as contingent contracts.

Contingent Contract Types

Contracts contingent upon the occurrence of an uncertain event: These contracts become valid only if the uncertain event mentioned in the contract occurs. For instance, let's say A and B enter into a contract wherein A promises to sell his goods in transit to B provided the goods safely reach the harbor. Since, the sale of goods by A is dependent upon a condition (that the goods reach the harbor), this is a contingent contract. If the ship does not make it to the harbor, the contract becomes void.

Contracts contingent upon the non-occurrence of an uncertain event: Sometimes, a contingent contract may depend upon the nonoccurrence of an uncertain event. For example, if A promises to sell his goods in transit to B if the ship carrying the goods does not come back, then the contract becomes valid if the ship sinks in the sea; if it safely reaches the harbor, the contract becomes void.

Contracts contingent upon the occurrence of an uncertain event within a specified timeframe: In these contracts, the event must occur within the period specified in the contract. For example, A promises to sell the goods in transit to B, if the ship carrying the goods safely arrives the harbor within eight days. If the ship comes on the ninth day or anytime thereafter, the contract becomes void.

Contracts contingent upon the nonoccurrence of an uncertain event within a specified timeframe: For example, let's say, A contracts to sell the goods in transit to B if the ship carrying the goods does not reach the harbor within eight days. Then, the contract becomes void if the ship arrives on the sixth day or anytime before eight days. On the other hand, if the ship does not come until eight days, the contract becomes valid; it does not matter whether or not it comes or does not come after the eighth day has passed.

Contracts contingent upon an impossible event: If the performance of a contract is dependent upon an impossible event, such a contract is ab initio void, i.e., void right from the beginning. For example, A promises to pay B $7,000 if B marries C, who died five years back. Now, since C is already dead, it's not possible for B to marry her. So, the contract becomes null and void.

Features of a Contingent Contract

  • The performance of a contingent contract depends upon whether or not a future event takes place.
  • A contingent contract cannot be enforced unless the specified event takes place.
  • If the event on which the contract is based becomes impossible, then the contract becomes void.
  • A contract based upon the non-happening of an event becomes enforceable only when the event becomes impossible.
  • A contingent contract based upon how a person acts in the future is considered impossible to perform if such person acts in way that renders him impossible to act in the manner required by the contract within any definite period of time.

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