3. Contingent contracts usually occur when both
negotiating parties fail to reach an agreement.
The contract is characterized as “contingent” because the
terms are not final and are based on certain events or
conditions occurring. Contingent contracts can be likened
unto if-then agreements that state which actions under
certain conditions will result in specific outcomes.
A contingency contract can also be viewed as protection
against a future change of plans. Contingent contracts can
also lead to effective agreement when each party has
different time preferences. For example, one party may
desire immediate payoffs, while the other party may be
interested in more long-term payoffs.
4. The following examples are everyday agreements:
The employee will be allowed to work two days a week
from home after having worked at the company for one
year, and if he submits all reports on time.
The teenager agrees to attend all classes, complete
homework on time, return home before curfew,
communicate with parents in a respectful manner, etc.
If the teenager violates any of the agreed upon rules,
he will choose to suffer the consequences which
involve being grounded, no television or Internet, not
using the family car, etc.The parents agree that if the
teenager performs the agreed upon behaviors, then the
teenager will be able to keep his privileges.
5. The objectives for each party involved must be aligned.
The promise is based on an uncertain event: the action
required of one party is only dependent upon the
occurrence of some event in the future.
The event must be minor to the contract: the performance
of a promise is not the event; rather it is part of the
contract.
The event is independent of the promising party: the
occurrence of an event is not controlled by the promising
party’s will or desire.
The agreements should be formalized in writing with
appropriate legal counsel.
The parties must mutually decide how the terms of
agreement will be measured.