A Conditional Contract is best described as what?

• A. Also called a hypothetical contract; performance depends on prior conditions being met.
• B. A contract that is enforceable immediately without conditions.
• C. A contract that only binds the insurer, not the insured.
• D. A contract that has no performance requirements.

Answer: (A)

A conditional contract is one where the parties’ obligations are triggered only if a specific condition occurs. In insurance terms, the insurer isn’t obligated to pay until those conditions are satisfied—such as the insured paying the premium, filing a valid claim, and the loss being covered under the policy. This is why it’s described as a hypothetical contract: the contract’s obligations depend on the prior conditions being met. It isn’t enforceable immediately without conditions, it isn’t one-sided, and there are required performances on both sides. The essence is that performance hinges on the stated conditions occurring.