According to Section 31, 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.” Thus the contract is dependent or conditional upon the happening or non-happening of a future event or contingency. For example, A contracts to pay B Rs. 10,000 if B’s house is burnt, this is a contingent contract. The payment of the amount is contingent on the happening of the collateral event i.e. burning of the house. All contract of insurance or indemnity and guarantee are contingent contract.
A distinction is to be drawn between a contract under which a present obligation is created but performance is postponed to a future date, and a contract under which there is no present obligation at all and the obligation is to arise by reason of some condition being complied with or some contingency arising in future. Thus when the agreement states that the delivery is to be made when the goods are received from the mills or when they arrive, such contracts are not contingent contract.
According to Pollock and Mulla, a ‘collateral event’ means and events which is “neither a performance directly promised as part of contract, nor the whole of the consideration for promise”.
It is one which does not for part of consideration of the contract, and is independent of it. If the event consists in performance of the contract itself by one party, it is not a contingent contract. For instance, A announces a reward of Rs. 100 to be paid to any one who finds his lost dog. B finds the dog. B’s act of finding the dog is acceptance of the offer as well as of the performance of contract. It is not a contingent but an absolute contract.
Similarly, where C contract to pay Rs. 100 to D for white washing his house on the terms that no payment shall be made till the completion of work, it is not a contingent contract because the event (D’s completing the work) is an integral part of the contract and not collateral to the contract. However, where A contracts to pay 50,000 to B, contractor for constructing a building, provided the construction is approved by an architect, it is contingent contract because approval by an architect is a collateral event which is independent of consideration i.e. construction of the building.