Chapter 6
CONDITIONS

I. CONDITIONS GENERALLY

A. Definition of "condition": An event which must occur before a particular performance is due is called a "condition" of that performance. (Example: Seller promises to ship Buyer 100 widgets. Buyer promises to pay for the widgets within 30 days of receipt. The parties agree that if the widgets don't meet Buyer's specs, he may return them and he will not have to pay for them. It is a condition of Buyer's duty of payment that the widgets be shipped, and that they meet his specifications. Buyer's duty is said to be conditional on the shipment of satisfactory widgets.)

1. Precedent/subsequent distinction: Courts distinguish between "conditions precedent" to a duty and "conditions subsequent" to a duty.

a. Precedent: A condition precedent is any event, other than a lapse of time, which must occur before performance under a contract is due.

b. Subsequent: A condition subsequent is an event which operates by agreement of the parties to discharge a duty of performance after it has become absolute.

c. Significance: It makes no substantive difference whether a condition is termed precedent or subsequent. (In any event, true conditions subsequent are rare.) Procedurally, it makes a difference, relating to the burden of proof: (1) the party to whom a duty is owed bears the burden of proving the occurrence of all conditions precedent to that duty; but (2) the party owing the duty must bear the burden of proving that a condition subsequent has occurred and discharged him.

d. Concurrent: A concurrent condition is a particular kind of condition precedent which exists only when the parties to a contract are to exchange performances at the same time. (Example: A promises to deliver his car to B on a certain date, at which time B is to pay for the car. Delivery and payment are "concurrent conditions," since performance by both is to be rendered simultaneously.) Concurrent conditions are found most frequently in contracts for the sale of goods and contracts for the conveyance of land.

2. Express and constructive conditions: If the parties explicitly agree that a duty is conditional upon the happening of some event, that event is an "express" condition. If, instead, the happening of an event is made a condition of a duty because a court so determines, the condition is "constructive" one (or a condition "implied in law").

Example of express condition: A is to ship widgets to B, and B agrees to either return them if they don't satisfy him, or pay for them. The contract states, "B's duty to pay for the widgets shall be conditional upon his being satisfied with them." This is an express condition.

Example of constructive condition: Same facts as above example — A contracts to ship widgets to B, and B agrees to either return the widgets as unsatisfactory, or pay for them. No language of condition is used in the agreement. As a matter of common law (or the UCC), the court will impose a constructive condition: B's duty to pay for the widgets will be constructively conditioned upon his receiving them and being satisfied with them.

a. Significance of distinction: The reason we distinguish between express and constructive conditions is that strict compliance with express conditions is ordinarily necessary, but merely substantial compliance is usually required to satisfy a constructive condition.

B. Distinction between conditions and promises: The fact that an act is a condition does not by itself make it also a promise. If the act is a condition on the other party's duty, and the act fails to occur, the other party won't have to perform. If the act is a promise, and it doesn't occur, the other party can sue for damages. But the two don't automatically go together. (Example: Landlord promises Tenant that Landlord will make any necessary repairs on the leased premises, provided that Tenant gives him notice of the need for such repairs. Tenant's giving notice of the needed repairs is an express condition to Landlord's duty to perform the repairs. But such notice is not a promise by Tenant. Therefore, if Tenant does not give the notice, he has not committed any breach of contract, but a condition to Landlord's duty has failed to occur. Landlord is relieved from having to make the repairs, but cannot sue Tenant for breach.)

1. Distinguishing: To determine whether a particular act is a condition, a promise, or both, the main factor is the intent of the parties. Words like "upon condition that" indicate an intent that the act be a condition; words like "I promise" or "I warrant" indicate a promise (though as described below, failure to keep the promise will also generally constitute the failure of a constructive condition.)

II. EXPRESS CONDITIONS

A. Strict compliance: Strict compliance with an express condition is ordinarily required. (Example: A contracts to sell his house to B for $100,000. The contract provides that B's duty to consummate the purchase is "conditional upon B's receiving a mortgage for at least $80,000 at an interest rate no higher than 9%." If the best mortgage B is able to obtain, after reasonable effort, is at 9.25%, the court will probably hold that B is not obligated to close, since the condition is an express one, and strict compliance with express conditions is ordinarily required.)

1. Avoidance of forfeiture: However, courts often avoid applying the "strict compliance" rule where a forfeiture would result. A forfeiture occurs when one party has relied on the bargain (e.g., by preparing to perform or by making part performance), and insistence on strict compliance with the condition would cause him to fail to receive the expected benefits from the deal. (Example: A contracts to build a house for B on land owned by B, for a price of $100,000. The contract provides that "B's duty to pay for the house is expressly conditional upon the finished house exactly matching the specifications of B's architect." A builds the house in general accordance with the specifications, but the living room is six inches shorter than shown on the plans, a deviation which does not noticeably affect the market value of the house. Despite the rule that strict compliance with an express condition is ordinarily required, the court would probably hold that strict enforcement here would amount to a forfeiture, and would therefore hold that the condition was satisfied despite the trivial defect.)

a. Excuse of condition: Alternatively, a court may find that the fulfillment of the express condition is "excused" where extreme forfeiture would occur. This will only be done, however, if the damage to the other party's expectations from non-occurrence of the condition is relatively minor. (Example: On the facts of the above example, the damage to B's expectations from the short living room is very small, so the court would probably excuse the non-occurrence of the condition.)

B. Satisfaction of a party: If a contract makes one party's duty to perform expressly conditional on that party's being satisfied with the other's performance, the court will usually presume that an objective standard of "reasonable" satisfaction was meant.

1. Subjective: But it is the intent of the parties that controls here: If the parties clearly intend that one party's subjective satisfaction should control, the court will honor that intent. This is likely to be true, for instance, where the bargain clearly involves the tastes of a person. Here, good-faith but unreasonable dissatisfaction will still count as the non-occurrence of the condition.

C. Satisfaction of third person: If the duty of performance is expressly conditioned on the satisfaction of some independent third party (e.g., an architect or other professional), the third party's subjective judgment usually controls. But this judgment must be made in good faith.