Contingent contracts are a type of contract that exist when an agreement is made to do something if a specific event occurs. These types of contracts are often used in business dealings where the outcome is not certain or where parties want to hedge against risk.
However, like any contractual agreement, contingent contracts have rules that must be followed to ensure their validity and enforceability. Here are some important rules you need to know:
1. The event must be uncertain
A contingent contract can only be made if the event that triggers the agreed-upon action is uncertain. It cannot be a certain event or something that has already happened. For example, a contract to sell a house contingent on the seller finding a new home is a valid contingent contract because the seller does not yet know if they will find a new home. However, a contract to sell a house contingent on the buyer already having the funds to purchase the home is not contingent because the buyer`s financial situation is already known.
2. The event must be possible
While the event that triggers the contingent contract does not have to be likely, it must be possible. If the event is impossible, the contract is not valid. For example, a contract that states a seller will sell a house if Elvis Presley comes back to life is not a valid contract because the event is impossible.
3. The outcome must be legal
The outcome of a contingent contract must be legal. If it is illegal, the contract is not valid. For example, a contract to sell drugs if a certain event occurs is not a valid contract.
4. The contract must be in writing
To be enforceable, a contingent contract must be in writing. This is to ensure that all parties are aware of the terms of the agreement and it reduces the risk of misunderstandings or disputes. The writing must also be signed by all parties involved.
5. The contract must include the contingency
The contingency that triggers the contract must be included in the written agreement. It must be specific and unambiguous to ensure that all parties understand what must happen for the contract to be enforceable.
In conclusion, contingent contracts often provide a valuable tool for managing risk in business dealings. However, to ensure that they are enforceable, certain rules must be followed. The event must be uncertain and possible, the outcome must be legal, the contract must be in writing and signed by all parties involved, and the contingency must be included in the agreement in a clear and precise manner. As long as these rules are followed, contingent contracts can be a useful tool for businesses and individuals alike.