An absolute contract is one where the promisor performs the contract without any condition while Contingent contracts, on the other hand, are the ones where the promisor performs his obligation only when certain conditions are met.
If you look at the contracts of insurance, indemnity or guarantee, they have one thing in common which is that, they create an obligation on the promisor if an event which is collateral to the contract does or does not happen. For example, in a life insurance contract, the insurer pays a certain amount if the insured dies under certain conditions. The insurer is not called into action until the event of the death of the insured happens. This is what we call a contingent contract.
Under Section 31 of the Indian Contract Act,1872 Contingent contracts are defined as follows: “If two or more parties enter into a contract to do or not do something, if an event which is collateral to the contract does or does not happen, then it is a contingent contract.” For Example, Peter is a private insurer and enters into a contract with John for fire insurance of John’s house. According to the terms, Peter agrees to pay John an amount of Rs 5 lakhs if his house is burnt against an annual premium of Rs 5,000. This is a contingent contract.
Here in the above example, the burning of the house is neither a performance promised as a part of the contract nor a consideration. Peter’s liability arises only when the collateral event occurs.
Contracts Contingent on an Event happening within a Specific Time
There can be a contingent contract wherein a party promises to do or not do something if a future uncertain event happens within a fixed time. Such a contract is void if the event does not happen and the time lapses. It is also void if before the time fixed, the happening of the event becomes impossible. This rule is specified in Section 35 of the Indian Contract Act, 1872. For example, Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a dangerous mission, returns before July 01, 2020. This contract is enforceable by law if the ship returns within the fixed time. On the other hand, if the ship sinks, then the contract is void.
Contingent contracts might also be based on the non-happening of an uncertain future event within a fixed time. In such cases, the promisor is liable to do or not do something if the event does not happen within the said time. The contract can be enforced by law if the fixed time has expired and the event has not happened before the expiry of the time. Also, if it becomes certain that the event will not happen before the time has expired, then it can be enforced by law.
Similar to the above example, Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a dangerous mission does not return before July 01, 2020. This contract is enforceable by law if the ship does not return within the fixed time. Also, if the ship sinks or is burnt, the contract is enforced by law since the return is not possible.
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