LEGAL ARTICLE ON CONTINGENT CONTRACT
ABSTRACT
This composition delves into the conception of contingent contracts as defined under the Indian Contract Act of 1872. It explains its nature, characteristics, and enforceability (of similar contracts) which are tentative upon uncertain unborn events. The composition outlines colorful types of Contingent Contracts similar as Insurance programs, real estate agreements & employment offers, pressing their practical operations. also, it discusses the exceptions & limitations that render contingent contracts unenforceable, including the impossibility of events & vagueness of terms. The composition emphasizes the significance of clear conditions for the enforceability of Contingent Contracts & the legal counteraccusations associated with them. Practical operations of contingent contracts are illustrated through colorful exemplifications similar as Insurance programs, real estate deals, & employment offers, demonstrating their significance in threat dealings & marketable operation. Eventually the composition underscores the necessity for careful drafting & the understanding of contingent contracts to cover the interests of the parties involved icing that these agreements serve their intended purpose in legal & marketable surrounds. Keywords Contingent Contract, Indian Contract Act, tentative Agreements, Enforceability, Impossibility, Legal Counteraccusations, Practical exemplifications & Immunity & limitations. preface Let us first begin with understanding the term “Contract”. What this term means is “it’s an agreement that’s enforceable by law, which has been covered as well as stated in section 2(h) of the Indian Contract Act of 1872”. It shall be noted that “contracts” are an important of marketable law because all marketable law deals generally begin either with an agreement or a contract. An Agreement in simple words, is a pledge. All agreements are not contracts. The Agreements must meet certain criteria like consideration, parties must be competent, free concurrence between the parties, legal object, & not expressly declared void by law, to qualify as a contract. The persons in a contract must also have the intention & Mindset to enter into a contract. Therefore, recalling the legal expression “All contracts are agreements but all agreements are not contracts”.
The Types of Contracts- From the veritably morning of the history of the Indian Contract Act of 1872, there are colorful types of contracts defined.
1. Grounded on the validity, the types of contracts are valid contracts, agreements, void contracts, voidable contracts, illegal contracts, enforceable contracts & Contingent Contracts.
2. Grounded on the conformation of the types of contracts are – express contracts,quasi-contracts, inferred contracts & E contracts.
3. Grounded on the performance, the types of contracts are – unilateral contracts, executory contracts & bilateral contracts.
Let us concentrate on “Contingent Contracts” specifically due to their tentative nature.
CONTINGENT CONTRACT
A contingent contract is a contract that’s also called or known as a tentative Contract. A contingent aka tentative contract is a contract to do commodity or not to do commodity on the passing of happening of an event which is contributory to the contract. A contingent contract can’t be executed until an uncertain future event happens. However, contingent contracts come void if the uncertain future event becomes insolvable.
To keep in mind is,
Contingent Contracts are valid.
In such a contract there’s no complementary pledge.
The third parties might be interested in a contingent contract.
Contingent contracts are no way wagering (Wager is a contract in which one person promises to pay the other plutocrat on the passing of an uncertain future event & the other person promises to pay the same on the non-happening of the same). The Indian Contract Act of 1872 covers as well as defines a contingent contract under section 31 as “Contingent Contract is a contract to do or not to do commodity, if some event, if some event, collateral to similar contract, does or doesn’t be. Let us understand this with the help of two illustrations,
“A contracts to pay B Rs. 10,000 only if B’s house is burnt. This is a contingent Contract.”
“A agrees to vend his cropland to B if he wins the case involving. This is a case of contingent contract because the performance of the contract is grounded on the passing of an uncertain event. The uncertain future event is winning the case. Characteristics of Contingent contracts are tentative. The contract’s performance depends on an uncertain future event.
Cannot be executed,
The contract cannot be executed unless the specified event occurs.
* Void if an event is insolvable If the event becomes insolvable, the contract is void.
* The event must be contributory to the contract, not part of it.
* The event must be uncertain, which means not a sure thing.
*Benefit or protection: Contingent contracts are frequently used to cover or profit the parties involved. exemplifications Insurance, reprisal, and guarantee contracts are common exemplifications of contingent contracts.
* In the environment of contingent contracts, query refers to the unpredictability of the circumstance of a specified event that triggers the scores under the contract. This query is a defining characteristic that differentiates contingent contracts from other types of contracts.
The crucial aspects include 1. reliance on unborn events.
The contingent contract is innately reliant on uncertain unborn events. The performance of the contract is contingent upon these events being or not being. For illustration, In an insurance contract, the insurer’s obligation to pay a claim is contingent upon the circumstance of an event (e.g. Theft, fire). Until that event occurs, there’s no obligation on the part of the insurer. 2. Allocation of threat.
The query involved in contingent contracts allocates threat between the parties. Each party must consider the liability of the event being when entering into a contract. For illustration- a real estate contract may be contingent upon the buyer securing financing. However, they are not bound to do with the purchase, therefore mollifying their threat, If the buyer fails to secure backing.
4) Types of Contingent Contracts
- Insurance contracts: These are the contracts where the insurer’s obligation to pay a claim is contingent upon the occurrence of a specific event (e.g., theft, fire, accident). Example: A homeowner’s insurance policy that pays out only if the home is damaged by a covered peril.
- Real Estate Contracts: These are Contracts for the sale of property that may be contingent on certain conditions being met, such as financing, inspections, or the sale of another property. Example: A purchase agreement that states the sale is contingent upon the buyer securing a mortgage.
- Performance-based: TheContracts that guarantee the completion of a project or task, contingent upon the performance of specific obligations by one party. Example: A contractor’s bond that ensures the contractor will complete a construction project according to the terms of the contract.
- Option Contracts: The contracts that give a right to one party, but not the obligation, to buy or sell an asset at a pre-determined price within a specified timeframe, contingent upon their decision. Example: A real estate option contract that allows a buyer to purchase a property at a set price within six months.
- Employment Contracts: Contracts that may be contingent on the completion of certain conditions, such as passing a background check or drug test. Example: A job offer that is contingent upon the candidate completing a probationary period.
- Sale of Goods Contract: These are contracts that involve the sale of goods where the obligation to deliver or pay is contingent upon specific events, such as the arrival of goods. Example: A contract for the sale of goods that is contingent upon the supplier’s ability to deliver the goods by a certain date.
- Contingent Sale Agreements: Agreements where the sale of one asset is contingent upon the sale of another asset. Example: A seller agreeing to sell a house contingent upon the successful sale of their current home.
5) Legal implications of Contingent Contracts
- Enforceability: Contingent contracts become enforceable when the specified condition or event, upon which the contract is based, occurs. Until that event takes place, the parties are not legally bound to perform their obligations. The key point is that a contract contains a condition that must be fulfilled before the parties have any obligations. Which is known as a condition precedent. Under Section 31 of the Indian Contract Act, of 1872, the enforceability of contingent contracts is explicitly outlined, stating that contracts to do or not do something if a certain event occurs are valid.
- Consequences of non-occurrence: If the specified event does not occur, the contingent contract may not be enforceable, and the parties are generally released from their obligations. The key point is that if the event doesn’t happen, the contract becomes void & neither party has any obligations to the other. The parties may not seek damages for non-performance since the failure to fulfill the contract is due to the non-occurrence of the condition, which is beyond their control. For instance in the case of:
Lala Durga Prasad v. Lala Deep Chand 1954 SCR 360, AIR 1954 SC 75 (SCR at p. 367….32. 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 Hiralal Lachmiram Pardeshi v. Janardan Govind Nerlekar AIR 1938 Bom 134.53. The claim for conveyance of life interest is also opposed…
Further in the case of Pooran Trading Private Limited Vs. Apple Industries Ltd. (2024) that Resolution plans being approved by the COC are contingent contracts, whose enforceability is conditional upon the approval of the adjudicating authority as per section 32 of the Indian Contract Act of 1872.
Exceptions & Limitations
Unenforceable conditions: The Contingent Contract becomes unenforceable under certain conditions. Here are some scenarios:
- If the event is impossible: Such type of Contract becomes unenforceable if the event upon which it is based is impossible to occur, whether due to physical or legal impossibility. The “physical impossibility occurs when an event can’t happen due to natural laws or circumstances (for eg- a contract to sell a specific piece of land that has been destroyed by a calamity like an earthquake is unenforceable as the subject of matter of the contract no longer exists)”. The “Legal impossibility” occurs when the event is prohibited by law, for instance- a contract contingent upon committing an illegal act (selling drugs) is unenforceable because the law doesn’t allow such actions.
- Keeping in mind that section 56 of the Principle Act states that an agreement to do an impossible act is void. This principle emphasizes that if the condition of the contingent contract is impossible, the contract can’t be enforced. For instance- a contract stating to pay an amount of 10,000 if you can bring me a unicorn, is unenforceable because unicorns don’t exist.
- If the terms are too vague or uncertain: Such contracts may also be deemed unenforceable if the terms related to the contingent event are too vague or uncertain to be understood or acted upon by the parties involved. “If the condition isn’t clearly defined it may lead to ambiguity regarding what must be sufficiently clear to determine the obligations of the parties. Contracts relying heavily upon subjective interpretations can be problematic. If the parties can’t agree on what those terms mean, the contract may be rendered unenforceable. For eg- A contract stating “I will pay you an amount of 5,000 if I am happy with the work done by you” is unenforceable due to the subjective nature of “happy feeling” lacking a clear standard of enforcement.
Some Practical Examples of Contingent Contracts
- Insurance policies: In an auto insurance policy, the obligation of the insurer to pay for the damages arises only if an accident occurs. If the vehicle of the former is involved in a collision, the insurance company is required to cover the repair costs, provided the claim is filed within the policy guidelines. However, if the vehicle is not involved in an accident, the insurer has no obligation to pay any claims.
- Employment offers: A job offer may be contingent upon the successful completion of a background check. Here the employer sends a formal offer letter stating that the position is contingent upon the candidate passing the background check. If the candidate fails the check, the employer is not obligated to hire them & the offer becomes void.
Conclusion
These contingent contracts play a crucial role in various legal & commercial transactions by allowing the parties to enter into agreements that depend on uncertain future events. Understanding the characteristics & conditions that govern these contracts is essential for ensuring their enforceability. This article highlights that contingent contracts offer flexibility & risk allocation, they must be carefully drafted to avoid issues relating to vagueness & impossibility. By adhering to legal principles outlined in the Principle Act, the parties can effectively utilize contingent contracts to safeguard their interests in diverse scenarios. Moreover, the article emphasizes the legal implications of contingent agreements, particularly regarding the consequences of non-occurrence of the specified future events & conditions that may render these contracts void. The importance of adhering to legal standards as established in the Indian Contract Act of 1872 is underscored as it provides a framework for ensuring that contingent contracts are not only valid but also enforceable.
References:
- Indian Contract Act of 1872
- NCERT legal studies book
- Scholarly
- Legal services India
- Understanding Contingent Contracts: A legal perspective, Journal of I.L.I 62(3) 345-367
- The role of contingent Contracts in Commercial transactions, Legal Studies Review 45(2)123-145
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- Indian Case law, Case Mine
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- Heinonline.org