Legal Definitions - dependent contract

A dependent contract is an agreement whose validity, enforceability, or very existence is conditional upon another, primary contract. If the primary contract is not formed, is terminated, or becomes invalid, the dependent contract typically also fails or becomes unenforceable. It cannot stand on its own without the underlying agreement it relies upon.

Here are some examples to illustrate this concept:

• Example 1: Mortgage Insurance

  Imagine a person takes out a loan from a bank to purchase a house, signing a primary mortgage loan contract. As part of this arrangement, they also sign a separate contract for private mortgage insurance (PMI), which protects the lender if the borrower defaults.

  The PMI contract is a dependent contract. Its existence and enforceability are entirely tied to the mortgage loan contract. If the primary mortgage loan contract were never finalized (e.g., the house sale fell through), or if the mortgage loan was fully paid off, the PMI contract would cease to be valid or necessary. It *depends* entirely on the existence and continuation of the mortgage loan.

• Example 2: Subcontractor Agreement in Construction

  A general contractor secures a major project to build a new commercial complex, signing a primary contract with the client. Subsequently, the general contractor enters into a separate agreement with a specialized electrical company to handle all the wiring and lighting for the complex.

  The electrical company's contract is a dependent contract. Its ability to perform the work and receive payment is contingent upon the general contractor's primary contract with the client. If the main construction project is canceled or the general contractor's primary contract is terminated for any reason, the electrical subcontractor's contract would also likely become void or unenforceable, as there would be no underlying project for them to contribute to.

• Example 3: Non-Compete Clause in a Business Acquisition

  A small business owner agrees to sell their company to a larger corporation, signing a primary business acquisition contract. As part of this deal, they also sign a separate agreement promising not to open a competing business in the same industry and geographical area for a specified period after the sale.

  This non-compete agreement is a dependent contract. Its enforceability is entirely contingent upon the successful completion of the primary contract for the sale of the business. If the business acquisition falls through for any reason (e.g., financing issues, failure to meet conditions), then the non-compete agreement would also become null and void, as there would be no underlying sale for it to protect.