A contingency contract is an agreement that an action will be performed if certain circumstances exist. It is used in real estate transactions and legal services, and can have conditional clauses. It reserves rights and reduces risks for both parties, and may require third-party involvement or be regulated by law.
The term contingency is used to describe an action that is possible but not certain. Similarly, a contingency contract is an agreement that an action is performed if certain circumstances exist or conditions are met. These types of contracts are used in a wide variety of situations, including real estate transactions or agreements for legal services. One of the main advantages of this type of agreement is that it reserves certain rights without unconditionally binding a person to a decision.
A common type of contingency contract is one established for legal services. These are often used in civil affairs where the client has the potential to receive money. An attorney can then agree to legally represent the client for a specified percentage of the potential award. In these cases, the lawyer is only paid if the case is won. If the client does not receive money, the lawyer shares the loss and also loses any right to legal costs.
A contingency contract can have a number of clauses included that contain conditional agreements. For example, two parties may sign an agreement to sell a vehicle. The prospective buyer can commit himself to buying the truck if no mechanical problems are found. However, the contract can go further and the potential buyer can further bind himself by agreeing to buy the truck anyway despite the discovery of problems if they are repaired within 48 hours at the seller’s expense. In this agreement, it becomes clear how a single agreement can be based on two or more contingencies.
This example also highlights one of the main benefits of a contingency contract, which is that it reserves certain rights while reducing some of the risks. When considering the contract for the truck, the prospective buyer must make the purchase if the conditions are met and the seller must make the sale. The buyer is thus protected from being forced to purchase a vehicle in poor condition and from having the seller trade the vehicle for another individual. The seller is protected from having the prospective buyer change his mind for unspecified reasons.
In some cases it may take more than the consent of the two parties signing a contingency agreement for an agreement to be binding. Third parties may be involved in ensuring that the terms of a contingency contract are fair. In some cases, the conditions contained in some types of agreements are regulated by law.
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