Conditional Agreements

• Author: John D. McCamus
• Pages: 710-727

710

CHAP TER 17

CONDITIONAL

AGR EEM EN TS

A. INTRODUC TION

The terms of a contract are of two kinds. Fir st, enforceable agreements

contain prom ises or underta kings i n which the promisor t ypical ly

undertakes to do certain things in t he future. Contractual promise s

may also take t he form of a promise or gua rantee that a particular state-

ment is or wi ll continue t o be true.1 Second, the typical agreement will

contain terms, though they may often be implied rather than express

terms, that stipulate or pre scribe states of affai rs that mu st exi st, or

not exist, if one or more of the undertakings in the agreement is to be

enforceable.

Under traditional usage, terms setting out these kinds of arrange-

ments are referred to as “conditions.” A simple building contract, for

example, could contain a promise to build a house accord ing to certain

specif‌ications on the part of the builder and a promise by the hirer to

pay a cert ain contr act price. Eit her expre ssly or by implication, t he

agreement may contain a furt her term that stipulate s that the comple-

tion of the building by the builder i s a state of affairs t hat must exist

before the obligation of the hirer to pay the contract price becomes

enforceable. Where the subject matter of the condition, as in this il lus-

tration, is the perform ance of one of the promises set out in the agree-

ment, the condition is often referred to as a “promissory condition.” A

1 See Chapter 18, Sect ion D.

Conditional Agreements 711

condition will often prescr ibe something other than the performance

of a promise as the state of aff airs that must ex ist before one or more of

the promises in the ag reement becomes enforceable. Thus, for example,

the building contract might provide that the promises to build and to

pay respectively are not enforceable until such time as a building per-

mit has been issued by t he local municipality. Such a condition may be

referred to as a “non-promissory condition” because neither party has

promised that the municipality will issue a building permit. If the mu-

nicipality refuse s, for some reason, to issue a building permit, neither

the builder nor the hirer is obliged to perform it s contractual promise s

and neither is in breach of its contractual obligations.

Conditions may also be subd ivided into “conditions precedent” and

“conditions subsequent.” A condition precedent describes a state of af-

fairs t hat must e xist before one or more of the promise s set out in t he

agreement becomes enforceable. The enforcement of the obligation, it is

sometimes said, is susp ended. If neither part y has promised to fulf‌il the

condition — to obtain the building p ermit in our example — we may

describe th is arrangement as a non-promissor y condition precedent. In

such circumstance s, the condition relating to the building permit is a

condition precedent to the obligations to build and to pay. A condition

subsequent prescribe s a state of affairs t hat will bring an already en-

forceable and binding obligation to an end. A simple illustration would

be a term in a contract of guarantee that stipulates that the promise of

guarantee will no longer be binding on the promisor once a new board

of directors is appointed to the debtor company. Although the guarantee

is binding on the guar antor until that event occurs, it terminates on the

occasion of the appointment of the new board. Such an arrangement

may be referred to as a non-promissor y condition subsequent.

In a previous c hapter,2 we examined the transformation in the

use of the term “condit ions” as it re fers to promi ssory conditions

precedent. In t he late-nineteenth cent ury, it became common profes-

sional usage to refer to the promise, the performance of which is a

condition that must be fulf‌illed before one or more of the other parties’

undertaking becomes enforceable, as itself a condition. Under this

usage, the promise of the builder to build t he home is categorized as

a “condition,” it being understood that so clas sifying the ter m had

the consequence that failure to perform the promise would render

the hirer’s promise to pay unenforceable. This rather elliptical use

of the term “condition” was adopted in the sale of goods legislation

2 See Chapter 15, Section B .