Contingent Contracts

 Basing on the presence or absence of

Conditions, Contracts can be classified
into two groups namely; Absolute
Contracts and Contingent Contracts. In
case where there is no condition, it is
called Absolute Contract. As there is
no condition, absolute contract is to be
performed under all circumstances.
Contingent contract has been defined
by section 31 of the Indian Contract
Act.

According to this section , a contingent

contract is a contract to do or not to do
something , if some event , collateral to
such contract , does not happen .

Thus it is a contract, the performance
of which is dependent upon, the
happening or non-happening of an
uncertain event, collateral to such
contract.
In case where there is condition, then
such contract is called Contingent
Contract. Therefore Contingent
Contract means Conditional Contract.
When imposed and condition is
fulfilled, the Contingent Contract
becomes valid and then parties have to
perform their obligations.
It is a kind of conditional contract and
the nature of condition is uncertain .
When the condition is of uncertain in
nature only then the contract can be
regarded as contingent contract .

 If the nature of condition is such that it

is certain to happen then it is not at all
a contingent contract .
 For example , A contracts to pay B `
10,000 /- if B’s house is burnt . This is
an example of contingent contract
because the contingency may or may
not happen .

 From this point of view , all contracts of

insurance , except life insurance , are
contingent contracts
 For example, the following are
contingent contracts:

(a) A contracts to sell B 10 bales of

cotton for Rs20, 000, if the ship by
which they are coming returns safely.

(b) A promises to give a loan of Rs1,

000 to B, if he is elected the president
of a particular association.
 Collateral Event- A collateral event is
one which does not form a part of
consideration of the contract, and is
independent of it.
 For example, A contracts to pay Rs
50000 to B, a contractor for
constructing a building, provided the
construction is approved by architect. It
is a contingent contract because the
consideration of the promise to pay Rs
50000 is the construction of the
building and the event, namely,
approval by an architect, is a collateral
event
Rules regarding the performance of
contingency contracts:

Section 32 , 33 and 34 of the Indian

Contract Act provides when contingent
contracts can be enforced .
Section 32 of the Indian Contract
Act provides when enforcement of
contract depends upon happening of
an event .

And if the event becomes impossible ,

such contracts become void .
 This section 32 of the Indian Contract Act
is based on the two basic principles .

Firstly , the contingent contract can not be

enforced unless and until there is an
element of uncertainty.

For example , A makes a contract with B

to buy B’s horse if A survives C . This
contract can not be enforced by law unless
and until C dies in A’s lifetime .
And secondly , if happening of the
event becomes impossible the
contingent contract becomes void .

As for example , A contracts to pay B a

sum of money when B marries C . C
dies without being married to B . The
contract becomes void .
Indemnity Contract: A contract where
one party promises to save the other
from any loss caused to him by the
conduct of promissory himself or any
other person is called contract of
indemnity, (Section 124) Indian
Contract Act, 1872.
Indemnity contract includes two parties
namely; Indemnifier and Indemnity
holder. The person who is promising
to pay compensation is called
Indemnifier and the person who`s loss
is compensated is called Indemnity
holder.
Example: There is a contract between X and
Y according to which X has to Sell a tape
recorder (which is selected) to Y after three
months. On the next day of their contract Z
has come to X and has insisted on selling
the same tape recorder to him (Z). Here Z is
promising to compensate X for any loss
faced by X, due to selling the tape recorder
to Z. X has agreed. Now the contract which
has got formed between X and Z is called
indemnity contract, where Z is indemnifier
and X is indemnity holder.
Guarantee Contract: A contract to
perform the obligation or to discharge
the liability of a third party in case of its
default is called contract of guarantee,
(Section 126) Indian Contract Act,
1872
Guarantee contract includes three
parties namely; Creditor, Principal
Debtor and Surety. The person who is
granting the loan, the person who is
utilizing the amount of loan is principal
debtor and the person who is giving
guarantee is called surety or guarantor
or favored debtor.
In case of guarantee contract there will
be two types of liabilities namely;
Primary liability and secondary liability.
Primary liability will be with principal
debtor and Secondary liability goes to
surety.
Example: Y is in need of Rs. 10000/-.
Upon guarantee by Z, Y has got the
amount from X. Here X, Y and Z are
creditor, principal debtor and surety
respectively.
Difference between Indemnity
Contract and Guarantee Contract

Number of Parties: Indemnity contract

includes two parties namely,
indemnifier and indemnity holder. But
guarantee contract includes three
parties namely creditor, Principal
debtor and surety.
Number of Contracts: In case of
indemnity contract, as there are only
two parties, there is possibility for
existence of one contract only. But a
contract of guarantee includes three
sub-contracts.
Nature: As indemnity contract includes
two parties and one contract, it can be
said that indemnity contract is simple in
nature. But guarantee contract includes
three parties and three sub-contracts
and hence be said that guarantee
contract is complex in nature.
Liability: In contract of guarantee there
will be two types of liabilities namely;
primary and secondary liabilities which
will be with principal debtor and surety
respectively. But in contract of
indemnity there is no classification and
sharing of liability where the absolute
liability rests with indemnifier. -
Recovery: In case of indemnity contract
the indemnifier, after compensating
indemnity holder`s loss, cannot
recover that amount from any person.
But in contract of guarantee, if surety
makes payment to creditor, he (surety)
can recover that amount from principal
debtor.
Bailment
 Law of Bailment:

 A ‘bailment’ is the delivery of goods

by one person to another for some
purpose, upon a contract that they
shall, when the purpose is
accomplished, be returned or otherwise
disposed of according to the directions
of the person delivering them.
The person delivering the goods is
called the ‘bailor’. The person to whom
they are delivered is called the ‘bailee’.
A bailment is the relationship
established when someone entrusts his
property temporarily to someone else
without intending to give up title.
Although bailment has often been said
to arise only through a contract, the
modern definition does not require that
there be an agreement.
The goods are delivered with some
purpose. When goods are delivered by
mistake without any purpose, there is
no bailment.
The goods are delivered subject to the
condition that when the purpose is
accomplished the goods are to be
returned or disposed of according to
the directions of the bailor, either in
the original form or in an altered form.
 Kinds of bailment:

On the basis of the benefit derived by the

parties :

 1. Bailment for the benefit of the bailor

alone:
 Where a person delivers his goods for safe
custody with his relatives or friends without
any reward. For example, A while going
out of station, leaves his scooter with his
friend, B, for safe custody.
 Bailment for the benefit of the bailee
alone:

 Where goods are lent for the use of

friends and relatives. For example, A
borrows B's books for a week.
Bailment for the mutual benefit of both
the bailor and the bailee:

 Where goods are bailed for reward or

some consideration then the bailment
is for the benefit of both the parties.
 Example:
 (1) A hires a taxi from B.
 (2) A gives his radio for repair to a
radio dealer.
On the basis of reward or
consideration :

 1. Gratuitous Bailment:
 A bailment without any reward or
consideration is called gratuitous
bailment. For example, A while going
out of station, leaves his cycle with his
friend B. B is not to get any reward in
this case.
Non-gratuitous Bailment:

 A bailment for reward or hire is a non-

gratuitous bailment. For example, A
gives his watch for repair.
Difference between Sale and Bailment

In sale title and possession both get

transferred while in contract of
bailment only possession get
transferred.
Sale is governed by the Transfer of
property Act and latter by the Indian
Contract Act1872.

the return of goods in contract of sale is

not possible. whereas in contract of
bailment, the bailee must return the
goods to the bailor on the
accomplishment of the purpose for
which the bailment was made
Rights of bailee:
In case where bailer has given goods
with defective title and bailee,
therefore, comes across suffering, then
such bailee has right to get
compensated by defective titled bailer.
Bailee has right of lien. It is only
particular lien. That means he can
exercise right of lien against those
goods only on which amount is due.

Bailee can return the goods to any one

of the joint owners.
Right to claim compensation for
expenses incurred for the safe custody
of the goods if the bailor has wrongfully
refused to take delivery of them after
the term of bailment is over.
Duties of Bailee:

Bailee should take reasonable care on

goods.

Bailee should not use the goods for an

unauthorized purpose.

 Bailee should not set up adverse title

Bailee should return the goods after
fulfillment of purpose.

Bailee should return not only delivered

goods, but also additions.
Bailee should not mix up the goods
with his own goods or others goods. If
bailee has mixed the goods and the
goods are of sufferable nature, bailee
has to face the cost of separation. If the
goods are of insufferable nature, bailee
has to compensate bailer.
Rights of bailor:

If bailee does not take care and

destruction of goods takes place, bailer
can claim compensation.

If bailee uses the goods for un-

authorized purposes, bailer has the
right to claim compensation.
 Bailer has the right to claim return of
goods.

 In case where bailee has mixed the goods

and they are of sufferable nature, bailer can
claim cost of separation from bailee.

 In case where the goods are of insufferable

nature, bailer has right to claim
compensation.
Duties of Bailor:

Duty to disclose faults: Bailer should

disclose faults present in goods at the
time of making delivery.
Duty to contribute for expenses: Bailer
should Contribute for expenses
incurred by bailee.
Duty with regard to defective title: In
case where bailer has delivered the
goods with defective title, the bailee
may come across suffering from the
side of true owner due to bailers
defective title. In such a case bailer with
defective title should compensate
bailee.
Duty to take the Goods back: After
fulfillment of purpose bailee returns
the goods to bailer. Then bailer should
take them back. If bailer refuses to take
the goods back, bailer has to
compensate bailee
Termination of Bailment:

A contract of bailment terminates

under the following circumstances:

If the bailment is for a specified period,

the bailment terminates as soon as
stipulated period expires.
If the bailment is for a specific purpose,
the bailment terminates as soon as the
purpose is fulfilled.
If the bailee does not act with regard to
the goods bailed, which is inconsistent
with the terms of bailment, the
bailment may be terminated by the
bailor even though the term of
bailment has not expired
A gratuitous bailment is terminated by
the death either of the bailor or of the
bailee.