Conditional Agreements

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

710

CHAPTER 17

CONDITIONAL

AGR EEM EN TS

A. INTRODUCTION

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

contain promises or undertakings in which the promisor typically

undertakes to do certain things in the future. Contractual promises

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

ment is or will continue to be true.1 Second, the typical agreement will

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

terms, that stipulate or prescribe states of affairs that must exist, 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 certain contract price. Either expressly or by implication, the

agreement may contain a further term that stipulates that the comple-

tion of the building by the builder is a state of affairs that 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 illus-

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

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

1See Chapter 18, Sect ion D.

Conditional Agreements711

condition will often prescribe something other than the performance

of a promise as the state of affairs that must exist 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 refuses, for some reason, to issue a building permit, neither

the builder nor the hirer is obliged to perform its contractual promises

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 that must exist before one or more of the promises set out in the

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 permit in our example — we may

describe this arrangement as a non-promissory condition precedent. In

such circumstances, the condition relating to the building permit is a

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

subsequent prescribes a state of affairs that 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-promissory condition subsequent.

In a previous chapter,2 we examined the transformation in the

use of the term “conditions” as it refers to promissory conditions

precedent. In the late-nineteenth century, 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 the home is categorized as

a “condition,” it being understood that so classifying the term 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

2See Chapter 15, Section B .