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An absolute contract is one where the promisor performs the contract without any condition. 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 – 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 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.”

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 lakh if his house is burnt against an annual premium of Rs 5,000. This is a contingent contract.

Here, 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.
1] Depends on happening or non-happening of a certain event
The contract is contingent on the happening or the non-happening of a certain event. These said events can be precedent or subsequent, this will not matter. Say for example Peter promises to pay John Rs 5,000 if the Rajdhani Express reaches Delhi on time. This is a contingent event.

2] The event is collateral to the contract
It is important that the event is not a part of the contract. It cannot be the performance promised or a consideration for a promise.

Peter enters into a contract with John and promises to deliver 5 television sets to him. John promises to pay him Rs 75,000 upon delivery. This is NOT a contingent contract since John’s obligation depends on the event which is a part of the contract (delivery of TV sets) and not a collateral event.

Peter enters into a contract with John and promises to deliver 5 television sets to him if Brazil wins the FIFA World Cup provided John pays him Rs 25,000 before the World Cup kicks-off. This is a contingent contract since Peter’s obligation arises only when Brazil wins the Cup which is a collateral event.

3] The event should not be a mere will of the promisor
The event cannot be a wish of the promisor. Say for example Peter promises to pay John Rs 5,000 if Argentina wins the FIFA World Cup provided he wants to. This is NOT a contingent contract. Actually, this is not a contract at all.

Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August 30, 2018. This is a contingent contract. Going to Dubai can be within John’s will but is not merely his will.

4] The event should be uncertain
If the event is sure to happen, then the contract is due to be performed. This is not a contingent contract. The event should be uncertain.

Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July 2018. This is not a contingent contract because in July rains are almost a certainty in Mumbai.

Enforcement of Contingent Contracts
Sections 32 – 36 of the Indian Contract Act, 1872, list certain rules for the enforcement of a contingent contract.