Contingent Contract
A contract whose performance depends on the occurrence of a future uncertain event; neither party is obligated to perform unless and until the specified contingency occurs.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Contingent Contract?
A contingent contract is an agreement in which one or both parties' obligation to perform is conditioned on the occurrence (or non-occurrence) of a specific future uncertain event. Until the contingency is resolved, neither party is required to perform their conditional obligations.
Contingent contracts are extremely common in real estate, M&A, and commercial transactions: a home purchase agreement may be contingent on the buyer obtaining a mortgage; an acquisition agreement may be contingent on regulatory clearance; a licensing agreement may be contingent on patent issuance. The contingency must be clearly identified, along with a deadline and the consequences if the contingency fails.
Courts distinguish between contingent contracts (no obligation until condition occurs) and contracts with a condition precedent (obligation exists, but performance is deferred). While conceptually similar, the distinction affects remedies: failure of a contingency typically results in no contract; breach of a condition precedent may give rise to liability.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Clear Identification of the Contingency
The contract must specify exactly what event must occur - financing approval from a named lender, regulatory clearance from a specific agency, or board approval by a specified date.Deadline for Satisfaction
Always set a hard deadline by which the contingency must be satisfied or waived. Without a deadline, the contract may be in indefinite limbo, creating uncertainty for both parties.Consequences of Failure
Specify what happens if the contingency is not satisfied: automatic termination, option to extend, or renegotiation. Without this, the parties may dispute whether the contract is alive or dead.Duty to Pursue Satisfaction
Courts often imply a duty of good faith to use reasonable efforts to satisfy a contingency. A party who deliberately prevents the contingency from occurring cannot rely on its failure.Real-World Example
A buyer signs a purchase agreement for a commercial property, contingent on securing a $5M bank loan within 60 days. On day 55, the buyer stops pursuing financing because they found a better property.
The buyer's failure to pursue financing in good faith likely breaches an implied duty of reasonable effort. The seller may be entitled to retain the earnest money deposit and seek damages, even though the contingency was never technically satisfied.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Financing Contingency ClauseWatch Out For
No deadline = indefinite uncertainty
A contingent contract without a satisfaction deadline can leave both parties in limbo for months or years. Always include a deadline and specify the termination mechanism if it is not met.Implied duty of good faith to satisfy conditions
Even if the contingency is entirely within your control, courts impose a duty to pursue it in good faith. You cannot simply decide not to try and claim the contingency failed.Don't let contingent contract deadlines catch you off guard
Key dates tied to contingent contracts - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Set a tight deadline with an extension option
Use a short initial deadline (e.g., 30 days) with a mutual option to extend for a defined period. This creates urgency while preserving flexibility.Define "satisfied" precisely
Specify exactly what evidence constitutes satisfaction of the contingency - a written letter, a government permit number, a board resolution. Vague satisfaction standards lead to disputes.Frequently Asked Questions
Can a party waive a contingency in their favor?
Yes. A contingency that exists for one party's benefit (e.g., a financing contingency for the buyer) can be waived by that party. Waiver should always be in writing to avoid disputes.
What happens if the contingency never occurs and there is no deadline?
Without a deadline, the contract may be treated as still pending indefinitely. Courts may eventually apply doctrines of reasonable time or commercial impracticability to terminate it, but this is uncertain. Always set deadlines.