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CS Professional · Drafting, Pleadings and Appearances · Commercial Contract Management

Meghna Textiles Ltd. agrees to pay Rohan Logistics Rs 4,00,000 if a particular consignment of cotton, stored in a third party's warehouse, is destroyed by fire. Payment depends on an event collateral to the contract. How should this clause be classified?

The clause is a contingent contract. Under the Indian Contract Act, 1872, a contingent contract is one to do or not do something if an event collateral to the contract does or does not happen. Payment depends on a collateral fire event, so it fits that definition.

  1. AContingent contractCorrect
  2. BContract of indemnity
  3. CNovation of the earlier contract
  4. DContract made by an undisclosed agent

Explanation

A contingent contract is a contract to do or not to do something if some event collateral to the contract does or does not happen. Payment here depends on the collateral event of the consignment being destroyed. It is not novation, as no new contract replaces an old one, and no agency is involved.

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