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CMA Foundation · Fundamentals of Business Laws and Business Communication · Contingent Contracts

Mehta promises to pay Iyer Rs. 50,000 if Iyer's warehouse in Surat is destroyed by fire. Which statement is correct?

This is a contingent contract, because Mehta's promise to pay depends on the warehouse being destroyed by fire, an event collateral to the contract. This mirrors the statutory illustration of paying money if a house is burnt. Uncertainty and futurity of the event are essential features, not defects.

  1. AIt is not a contingent contract because the event is uncertain
  2. BIt is a contingent contract because payment depends on an event collateral to the contractCorrect
  3. CIt is a contingent contract only if Mehta causes the fire
  4. DIt is void because the event is in the future

Explanation

Under Section 31, a promise to pay money if a house is burnt is a contingent contract; the warehouse fire is an event collateral to the contract. Uncertainty is not a defect, and futurity does not void it. The contract is not dependent on Mehta causing the fire.

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