Sec. 31 of the Indian Contract Act defines contingent contracts as contracts to do or not to do something, if some event, collateral to such contract, does or does not happen. For instance, when A agrees to pay B ₹10,000 if A dies before C, this would be considered a contingent contract. A contingent contract can be dependant upon the following events:
– When the enforcement depends upon the happening of an event. Sec. 32
– When performance depends upon the non-happening of an event. Sec. 33
– When the event on which the contract is contingent is to be deemed impossible if it is the future conduct of a living person. Sec. 34
– When contracts are contingent on happening of a specified event within a specified time, they become void. Sec. 35(1)
– When contracts are contingent on the non-happening of a specified event within a specified time, they become void. Sec. 35(2)
– When contracts are contingent on impossible events. Sec. 36
Contracts of Insurance, indemnity, and guarantee are contingent contracts. Insurance is a contract to do or not to do something if an uncertain future event happens, and the liability will be taken by the offeror i.e the insurance company. The performance of such contracts is solely dependent upon the happening or non-happening of the collateral event. For instance, when A agrees to pay B a sum of money on the loss of a ship, the performance of the contract can be demanded only on loss of the ship. Therefore all insurances like Fire insurance, Marine insurance, and Life insurance are contingent contracts where the insured pays a certain sum of only, i.e premium, to the insurer who promises to take risk against the happening or non-happening of a future uncertain event.
A contingent contract as defined in section 31 of Indian Contract Act, 1872 is that contract which depend on happening or non-happening of an event. As insurance depends on happening of a mishap for which the entity is insured from, it is a contingent contract. It can be enforced when that particular thing has happened and in case it doesn’t happen then the contract becomes invalid as per section 32 of ICA, 1872.For Example, X insured his car and the insurer promised to pay him in case the car was stolen. Since, the payment depend upon the loss of car by theft, it is a contingent contact. And, the insurer will be liable only when the car gets stolen.