In the past, it has been assumed that differences in negotiations are always a source of dispute and limit the ability of the parties to reach an agreement. But in recent years, negotiation specialists have shown that differences are often constructive. They form the basis for compromises that can pave the way for mutually beneficial agreements. However, when differences have to do with uncertain future events that are crucial for both sides, compromises become very difficult. By making differences the basis of a bet that offers potential profits to both parties, conditional contracts allow negotiators to avoid long, expensive and often futile arguments. Negotiators can focus on their real common interests, not on their speculative disagreements. Have you ever negotiated a conditional contract (whether you call it that or not)? Contracts that depend on the non-occurrence of an uncertain event: Sometimes a conditional contract may depend on the non-occurrence of an uncertain event. For example, if A promises to sell its goods to B in transit if the ship carrying the goods does not return, the contract becomes valid when the ship sinks in the sea; if it reaches the port safely, the contract expires. What makes information asymmetry so uncomfortable for businesses is that it increases the possibility of deception. In fact, fear of deception can be a major obstacle to all kinds of trade deals.
Conditional contracts are a powerful way to expose deception and neutralize its consequences. Another example is a contract that bets on the outcome of a sports game. If the contract states that if a team wins, those who bet on that team`s success would receive a payment, winning the event is the security of the deal. The event may also not be a wish or will of the person entering into the contract, nor can it be certain that it will occur. This should not depend on the wishes of the promisor, nor should it be at his discretion. Conditional contracts are particularly useful because they allow a negotiator to test the veracity of the other party in a non-confrontational manner. If the clothing company had directly accused the manufacturer of lying, passions would have been inflamed and the relationship between the companies would have been damaged, probably fatally. The quota contract allowed them to reach an amicable settlement that allowed the manufacturer to save face and teach him a lesson about the need for open relations with his partner. Tags: conditional contract, value creation in negotiation, transaction design, Guhan Subramanian, Harvard Law, Harvard Law School, how to enter into a transaction, in negotiation, Lawrence Susskind, negotiation, negotiations, win-win negotiation A real estate contract is a legally enforceable agreement that defines the roles and obligations of each party in a real estate transaction. Contingent liabilities are clauses that are attached to and form an integral part of the contract. It is important to read and understand your contract, paying attention to all specified dates and deadlines. Because time is crucial, a day (and a missed deadline) can have a negative and costly impact on your real estate transaction.
To be considered a conditional contract, an agreement must meet certain criteria and contain several key elements. The first is a dependency on a particular event that occurs or does not occur, and the condition that if that future event occurs or does not occur, the agreement is valid and both parties must comply with their established obligations. Events can be later or previous because the order or timing does not matter. The parties to a conditional contract must fulfil their obligations if the condition imposed is met. The contract expires if the condition is not met. Therefore, conditional contracts are only intended to be performed in certain circumstances. An emergency agreement would have been an effective and rational way to resolve this dispute. IBM and the government, for example, could have agreed that if IBM still held at least 70% of the market in 1975 — its share in 1969 — it would pay a fixed fine and divest itself of certain companies. However, if their market share had fallen to 50% or less, the government would not take antitrust action.
If its share slipped between 50% and 70%, another contingency plan would be executed. Contingency clauses are often used in real estate transactions, where an offer to buy a home may be conditional on something being fulfilled. .