Contingent Contract: An Introduction
May 11, 2025
min read
Introduction
In a general sense, a contingent contract is a contract to do or not to do something if some uncertain event collateral to such contract does or does not happen. The performance of contract which depends upon the happening of condition or contingency is a contingent contract. Contract of insurance, indemnity, guarantee etc. are considered as an example of contingent contract.
Like a general contract, a contingent contract also creates a relationship between the parties, and the obligation and rights arise out of this relation, but the promisor is not bound to perform his obligations immediately after the formation of the contract. He is to perform the obligations only on the happening or non-happening of such event in the future as agreed upon by the parties.
What is a Contingent Contract?
A contract which is subject to a certain or absolute type of condition cannot be regarded as a contingent contract. A contract, for example, to pay a sum of money on the expiry of a time or on a death of a person is not a contingent contract because these events are of a certain nature. The time or the person in question will definitely expire and the money will be payable.
Contingent contracts are also called conditional contracts. But all Contingent contracts are not conditional contracts and vice versa.
Conditional Contract
Conditional contract refers to a contract having certain conditions, and the performance of such a contract is solely based on such conditions. Examples include:
If 'A' contracts to deliver the book to 'B' if 'B' is ready to pay the price after a week. Here, this is a “conditional" and not a “contingent” contract because the obligation of 'B' to pay the price is conditional on the delivery of book by ‘A.’ This is not a contingent contract since the event on which the liability of ‘B’ depends is condition precedent i.e. the promise itself, not the collateral- event.
If 'A' advertises a reward for the finder of his lost dog. This is not a contingent but a conditional contract because there is no contract unless someone finds the dog and returns it to 'A' who is the owner.
Contingent Contract is sort of a conditional contract, and the condition is of uncertain nature. Example of a contingent contract; A contract to pay a sum of money on the destruction of a premises by fire, is a contingent Contract, for that contingency may or may not happen. All contracts of insurance, are contingent contracts.1
Contingent contract is a contract by which one party promises to do something in favor of another on the happening or non- happening of an event mentioned in the contract.
Definition of Contingent Contract
The General Law of Nepal i.e., Muluki Civil Code, 2074 hat not explicitly defined the term contingent contract. However, it has illustrated the circumstances of contingent contract in section 513.
The Contract Act, 2056 which was prevalent erstwhile (before Civil code, 2074) had Similar provisions in Section 12.
The Indian Contract (also known as ICA) Act, 1872 defines Contingent contract in the following words:
'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.' Example: "A’’ contracts to pay 'B' Rs 10000 if B's house is burnt.2
Similarly, The Contract Act, 1872 of Bangladesh defines contingent contract as 'a contract to do or not to do something, if some events collateral to such contract, does or does not happen'. Example: 'A' contracts to pay 'B' Taka 10,000 if B's house is burnt.
A contract to pay a sum of money on the loss of a ship is a contingent contract. The contract is already there and is not to arise on loss, but the performance can be demanded only on the loss of the ship.
A contract to buy land which is under dispute made with a party to the dispute, and to become operative if he wins the case, is a contingent contract, its performance being wholly dependent upon the result of the litigation.
Wagering Agreements
Wager' refers to the promise of giving money or money's worth upon determination of an uncertain event (Anson). It is an agreement where money or money's worth is paid by one person to another for the happening or non- happening of future uncertain event.
Illustration:
In a general sense, a contingent contract is a contract to do or not to do something if some uncertain event collateral to such contract does or does not happen. The performance of contract which depends upon the happening of condition or contingency is a contingent contract. Contract of insurance, indemnity, guarantee etc. are considered as an example of contingent contract.
Like a general contract, a contingent contract also creates a relationship between the parties, and the obligation and rights arise out of this relation, but the promisor is not bound to perform his obligations immediately after the formation of the contract. He is to perform the obligations only on the happening or non-happening of such event in the future as agreed upon by the parties.
What is a Contingent Contract?
A contract which is subject to a certain or absolute type of condition cannot be regarded as a contingent contract. A contract, for example, to pay a sum of money on the expiry of a time or on a death of a person is not a contingent contract because these events are of a certain nature. The time or the person in question will definitely expire and the money will be payable.
Contingent contracts are also called conditional contracts. But all Contingent contracts are not conditional contracts and vice versa.
Conditional Contract
Conditional contract refers to a contract having certain conditions, and the performance of such a contract is solely based on such conditions. Examples include:
If 'A' contracts to deliver the book to 'B' if 'B' is ready to pay the price after a week. Here, this is a “conditional" and not a “contingent” contract because the obligation of 'B' to pay the price is conditional on the delivery of book by ‘A.’ This is not a contingent contract since the event on which the liability of ‘B’ depends is condition precedent i.e. the promise itself, not the collateral- event.
If 'A' advertises a reward for the finder of his lost dog. This is not a contingent but a conditional contract because there is no contract unless someone finds the dog and returns it to 'A' who is the owner.
Contingent Contract is sort of a conditional contract, and the condition is of uncertain nature. Example of a contingent contract; A contract to pay a sum of money on the destruction of a premises by fire, is a contingent Contract, for that contingency may or may not happen. All contracts of insurance, are contingent contracts.1
Contingent contract is a contract by which one party promises to do something in favor of another on the happening or non- happening of an event mentioned in the contract.
Definition of Contingent Contract
The General Law of Nepal i.e., Muluki Civil Code, 2074 hat not explicitly defined the term contingent contract. However, it has illustrated the circumstances of contingent contract in section 513.
The Contract Act, 2056 which was prevalent erstwhile (before Civil code, 2074) had Similar provisions in Section 12.
The Indian Contract (also known as ICA) Act, 1872 defines Contingent contract in the following words:
'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.' Example: "A’’ contracts to pay 'B' Rs 10000 if B's house is burnt.2
Similarly, The Contract Act, 1872 of Bangladesh defines contingent contract as 'a contract to do or not to do something, if some events collateral to such contract, does or does not happen'. Example: 'A' contracts to pay 'B' Taka 10,000 if B's house is burnt.
A contract to pay a sum of money on the loss of a ship is a contingent contract. The contract is already there and is not to arise on loss, but the performance can be demanded only on the loss of the ship.
A contract to buy land which is under dispute made with a party to the dispute, and to become operative if he wins the case, is a contingent contract, its performance being wholly dependent upon the result of the litigation.
Wagering Agreements
Wager' refers to the promise of giving money or money's worth upon determination of an uncertain event (Anson). It is an agreement where money or money's worth is paid by one person to another for the happening or non- happening of future uncertain event.
Illustration:
- Subash and Aaditya make a bet whether it will rain or not rain tomorrow. If it rains Subash has to pay 100 rupees to Aaditya and if it does not rain Aaditya has to give Rs. 100 to Subash.
- Sujendra and Suyog makes a bet whether Nepal will enter into the super six of ICC Men’s Cricket world cup. If Nepal won Sujendra has to pay Rs 1000 to Suyog and if Afghanistan wen, Suyog has to pay 1000 to Sujendra.
Essential elements:
- There must be a promise to pay money or money's worth.
- The promise must be conditional on the event happening.
- The event must be uncertain. The parties do not know the result.
- One party has to lose and other has to win after the conclusion of the event.
Effects of Wagering Contracts
- In the Indian case of Babasaheb Rahimsaheb v. Rajaram Raghunath Alpe (1930), The Bombay High Court observed that the term wagering agreement is not defined in the Indian Contract Act 1872, and as per the definition given by Sir William Anson it is a promise to pay money on the determination of an uncertain event. 3
- The then Nepal Gambling Act has made such wagering agreement void ab initio.
- Certain types of game of chance viz lottery, raffles etc. are valid if permitted by the government.
- Lotteries may be organized with the permission of CDO. Government of Nepal
- Bhai Raja Pradhan (Decision number 7774): Marriage' in cards as a form of gambling, as there is a practice of betting money or anything worth it.
- Section 125 of National Penal Code, 2074 prohibits it as.
- No one can bet or cause betting.
- The offender is liable to a sentence of imprisonment for a term not exceeding one year and a fine not exceeding ten thousand rupees along with the forfeiture of the claimed amount used in the offence.
Differences between the Contingent Contract and Wagering Agreements
1. Definition:
1. Definition:
A contingent contract is defined by the Muluki Civil Code, 2074 in section 513, whereas betting and gambling under Nepalese law is an illegal act.
2. Type of document:
A contingent contract is a valid contract which is enforced by the court of law, whereas the wagering contract is not a valid contract but an agreement sans legal enforcement.
3. Win and loss:
In a contingent contract, there is no question such as gain or loss, whereas in a wagering agreement, if one wins the other must lose.
4. Game of choice:
Contingent contract is not a game of choice whereas wagering agreement is purely a game of choice.
5. Purpose:
Contingent contracts have social and economic benefits, so it is encouraged because it protects from risk or loss. On the other hand, wagering contract does not serve any useful purposes.
6. Public Policy:
Contingent contracts, unlike wagering contracts, are not against public policy.
7. Interest:
Contingent contracts serve to protect an interest, e.g., insurance protects property and life, whereas wagering agreements do not have any interest as such.
8. Promisor (Reciprocity in promise):
Under contingent contract, there is only one promisor who promises to do or give something on the happening or non-happening of an uncertain event in the future whereas under wagering agreements both the parties are promisors to each other. If one party ought to give something to another in one situation, the other party will have to give same thing to the first party in the reverse situation.
9. Future Event:
In a contingent contract, future event is only collateral, whereas in wagering contract future event is the sole determining factor.
10. Nature:
Contingent contract may not be of wagering nature. For e.g., Insurance and indemnity, however wagering agreements are contingent in nature.
Essentials of Contingent Contract
- Performance depends upon happening or non-happening of some events.
- Event must be collateral to the contract i.e., it does not form part of the reciprocal promises which constitute the contract.
- The contingent event is uncertain is it should not be the mere will of the promisor.
Rules of Contingent Contract:
The rules regarding contingent contract under different laws of some states are enlisted below,
- Nepal Contract Act, 2056, Section 12)
- Muluki Civil Code 2074, (Section 513 (existing law)
- Indian Contract Act, Section 81-36)
- The Contract Act. 1872 (Bangladesh, Section 31-36)
- Different case laws (precedents)
Rules:
1. When enforcement depends upon happening of an event 4
If a contract is concluded to do or not to do any act if some event happens in the future, such a contract shall create no obligation until such an event happens. If the event becomes impossible, such contract becomes void.
Illustration:
a. There was a contract for sale of certain property contingent on the court sanctioning it, when the court refused to sanction the sale, the contract was held to have become void. 5
b. ‘A' contracts to pay 'B' a sum of money when' B' marries 'C.’ "C' dies without marrying /being married to 'B' The Contract is void. This section lays two basic principles:
1. When enforcement depends upon happening of an event 4
If a contract is concluded to do or not to do any act if some event happens in the future, such a contract shall create no obligation until such an event happens. If the event becomes impossible, such contract becomes void.
Illustration:
a. There was a contract for sale of certain property contingent on the court sanctioning it, when the court refused to sanction the sale, the contract was held to have become void. 5
b. ‘A' contracts to pay 'B' a sum of money when' B' marries 'C.’ "C' dies without marrying /being married to 'B' The Contract is void. This section lays two basic principles:
- A contract to do an act on the happening of a future uncertain condition cannot be enforced unless that event happens (on the happening of the requisite contingency), specific performance of the contract can be demanded.6
- If the happening of that event has become impossible, the contract becomes void.
The contract would not be enforceable where the event does not happen in the way contemplated by the contract. In VP Desa v. Union of India, where a car was insured against loss in transit, the car was damaged without being put in the course of transit, the insurer was held to be not liable.7
2. Enforcement of contracts contingent on an event not happening 8
If a contract is concluded to do or not to do any act if any uncertain event does not happen in the future, the obligation under such a contract arises only after such an event becomes impossible to happen.
Illustration
'Ram' agrees to pay 'Shreedhar' a sum of money if a certain ship does not return. The ship has sunk. The contract can be enforced when the ship sinks, as the return of the ship is no longer possible due to sinking.
An agreement to sell land provided that the earnest money would be returned in case the land is notified for acquisition. Unknown to the parties, the land was already under notification. The contract became impossible of performance, and therefore void. 9
3. Event linked with future conduct of a living person 10
If a contract is so concluded as to be deemed to be concluded if any person does a particular act in the future, such a contract shall create no obligation if such a person does anything by which he or she becomes unable, or it becomes impossible for him or her to do such an act.
Illustration:
‘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. In Frost v Knight, the defendant promised to marry the plaintiff on the death of his father. while the father was still alive, he married another woman. It was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for breach of contract. 11
Where there was a written agreement to buy the benefits of plaintiff’s invention if it was approved by the engineer, it was held that there was no concluded contract because the invention was not approved by the engineer (Pym v Campbell) 12
4. On a specified event happening within a fixed time 13
If a contract is concluded to do or not to do any act if any event happens within any fixed time in the future, the contract shall be deemed to be void after such an event becomes impossible to happen within, or after the expiry of, the fixed time.
If a contract is made contingent on the happening of an event within a fixed time, the event must happen within the time fixed otherwise it is void.
Illustration
'A' promises to pay 'B' a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within a year and becomes invalid if the ship is burnt/sunk or returns after the year.
5. On a specified event not happening within a fixed time 14
If a contract is concluded to do or not to do any act if any event does not happen within any fixed time in the future, the obligation under such contract shall arise if such an event does not happen or it becomes certain that such an event will not happen within fixed time.
Illustration
'A' promises to pay 'B' a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within a year and becomes void if it does not return.
6. Impossible event
When an agreement is contingent upon impossible event, the agreement is void. The contingent agreement to do or not to do anything, if an impossible event happens, is void. Contingent contract considers only uncertain but not impossible event.
Illustration
A agrees to pay B 1000 rupees if two straight lines should enclose a space. This agreement is void.
Conclusion
In light of the meaning, definition, essentials, rules of a contingent contract, we can conclude that contingent contract is a contract depending on the happening or non-happening of uncertain event. The performance of contingent contract depends upon contingency, which is uncertain, not in the hands of promisor and must be collateral to the contract. Section 513 of National Civil Code 2074 has provisioned about contingent contract.
The meaning of wagering agreement makes it easier to distinguish between the wagering and contingent contract on several basis.
2. Enforcement of contracts contingent on an event not happening 8
If a contract is concluded to do or not to do any act if any uncertain event does not happen in the future, the obligation under such a contract arises only after such an event becomes impossible to happen.
Illustration
'Ram' agrees to pay 'Shreedhar' a sum of money if a certain ship does not return. The ship has sunk. The contract can be enforced when the ship sinks, as the return of the ship is no longer possible due to sinking.
An agreement to sell land provided that the earnest money would be returned in case the land is notified for acquisition. Unknown to the parties, the land was already under notification. The contract became impossible of performance, and therefore void. 9
3. Event linked with future conduct of a living person 10
If a contract is so concluded as to be deemed to be concluded if any person does a particular act in the future, such a contract shall create no obligation if such a person does anything by which he or she becomes unable, or it becomes impossible for him or her to do such an act.
Illustration:
‘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. In Frost v Knight, the defendant promised to marry the plaintiff on the death of his father. while the father was still alive, he married another woman. It was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for breach of contract. 11
Where there was a written agreement to buy the benefits of plaintiff’s invention if it was approved by the engineer, it was held that there was no concluded contract because the invention was not approved by the engineer (Pym v Campbell) 12
4. On a specified event happening within a fixed time 13
If a contract is concluded to do or not to do any act if any event happens within any fixed time in the future, the contract shall be deemed to be void after such an event becomes impossible to happen within, or after the expiry of, the fixed time.
If a contract is made contingent on the happening of an event within a fixed time, the event must happen within the time fixed otherwise it is void.
Illustration
'A' promises to pay 'B' a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within a year and becomes invalid if the ship is burnt/sunk or returns after the year.
5. On a specified event not happening within a fixed time 14
If a contract is concluded to do or not to do any act if any event does not happen within any fixed time in the future, the obligation under such contract shall arise if such an event does not happen or it becomes certain that such an event will not happen within fixed time.
Illustration
'A' promises to pay 'B' a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within a year and becomes void if it does not return.
6. Impossible event
When an agreement is contingent upon impossible event, the agreement is void. The contingent agreement to do or not to do anything, if an impossible event happens, is void. Contingent contract considers only uncertain but not impossible event.
Illustration
A agrees to pay B 1000 rupees if two straight lines should enclose a space. This agreement is void.
Conclusion
In light of the meaning, definition, essentials, rules of a contingent contract, we can conclude that contingent contract is a contract depending on the happening or non-happening of uncertain event. The performance of contingent contract depends upon contingency, which is uncertain, not in the hands of promisor and must be collateral to the contract. Section 513 of National Civil Code 2074 has provisioned about contingent contract.
The meaning of wagering agreement makes it easier to distinguish between the wagering and contingent contract on several basis.
References
About the Authors
Shruti Timsina
A law student of Nepal Law Campus, with an interest in the fields of International Law, Constitutional Law and Private Laws. Passionate about research, writing, and learning new skills.
View all posts by Shruti Timsina