This is defined by sec. 31 as “a contract to do or not do something, if some event, collateral to such contract does or does not happen”. Quite a good part of commercial business transaction consists of contingent contract; hence the necessity for the separate treatment for such contracts. They are also known as “conditional contracts”. In such contracts, the liability is not absolute but dependent upon the happening or not happening of a certain event, e.g. arrival of a ship, production by a particular mill, etc. Ordinary contract some of insurance are also contingent contract, so also contracts of guarantee and indemnity.
It is important to note in this connection that it is not every contract in which liability is dependent on a contingent that can be called a contingent contract. Thus A’s promise to pay Rs. 500 to B if B marries C. In other words if the contingency is of the essence or foundation of the contract, there is no case for a contingent contract. It is only if the contingency is as regards matter “collateral”, i.e. incidental to the main purpose of the agreement that the contract can be called a “contingent contract”. Thus a builder contract with a stipulation that payments shall be against the architects’ completion certificate, and insurance company’s contract to pay “if claim is properly made and proved to the directors’ satisfaction” are contingent contracts.
Notice in this connection that a contingency depend on the mere will and pleasure of one of the parties to the contract is not enough. Thus an agreement to work on such payment as the employer pleases to make, is no contract at all. The contingency must be dependent on the act of a party, even though the act is voluntary or discretionary. Thus an agreement to pay “as A shall decide,” is a good contract. A under the agreement is bound to exercise his discretion honestly and not capriciously.