Conditions


See Also:


Terms:


Express Conditions:
Conditions which are explicitly stated in the contract.

Conditions Precedent:
A condition that must be satisfied before the performing party has a duty to perform. The satisfaction of the condition will trigger the performing party’s duty to perform.

Condition Subsequent:
An express condition that occurs after the duty to perform has begun. The satisfaction of the condition will release the performing party from his duty to perform.

Implied Conditions:
A condition that is not expressly mentioned in the contract but is imputed by law from the nature of the transaction or from the conduct of the parties.

Express Conditions

There are certain instances where failing to perform is completely justified. For example, if a contract clearly says that a certain condition or conditions must be met before a party must perform and those conditions have not been met, the party is not legally obligated to perform on the contract.

There are two kinds of express conditions:

  1. conditions precedent
  2. conditions subsequent.

A condition precedent is a condition that must be met before the performing party has a duty to perform. Then, once the condition is met, the duty to perform is triggered. For example:

Theo, a bat boy for the Boston Red Sox, and Pedro enter into a contract under which Theo will sign Pedro to a contract if Theo becomes the General Manager of the team. Although Theo is bound by the contract, his becoming the general manager is a condition precedent to his having to perform on the contract so that becoming the general manager will trigger Theo’s duty to sign Pedro to a contract. However, if Theo does not become the general manager, he will not have to sign Pedro to a contract. .

A condition subsequent is a condition that arises after the duty to perform has begun and, if satisfied, releases the performing party from his duty to perform. For example:

Pedro and the Red Sox sign a contract in which Pedro agrees to pitch for the Red Sox “until I receive an offer to pitch in the Dominican professional league.” Here, Pedro has a duty to perform on the contract until the condition he has set out is met. If that condition is met, his duty to perform is terminated and he no longer has to pitch for the Red Sox. See Hartman v. San Pedro Commercial Co., 66 Cal. App. 2d 935 (1944).

In short, where a contract contains a condition precedent, there is no duty to perform until the condition is met. Once the condition is met, performance is required. Where a contract contains a condition subsequent, there is a duty to perform until the condition is met. Once the condition is met, the duty to perform is terminated.

Procedurally, in a cause of action for breach of contract where the contract contains a condition precedent, the burden of proof is on the plaintiff to show that the condition precedent has been met. For example:

Theo, a bat boy for the Boston Red Sox, and Pedro enter into a contract under which Theo will sign Pedro to a contract if Theo becomes the General Manager of the team. If Pedro sues Theo for breach of contract, the burden is on Pedro to prove that Theo has become the general manager and now must offer Pedro a contract.

In a cause of action for breach of contract where the contract contains a condition subsequent, the burden of proof is on the defendant to prove that the conditions have or have not been met. For example:

Pedro and the Red Sox sign a contract in which Pedro agrees to pitch for the Red Sox “until I receive an offer to pitch in the Dominican professional league.” If Pedro stops playing for the Red Sox and Theo sues him, the burden is on Pedro to show that he has been offered a contract by the Dominican professional league and is thereby justified for no longer playing for the team.

Certain issues arise when the fulfillment of a condition precedent is expressly determined by an individual party’s satisfaction. For example:

Philip hires Tom Builder to build him a house. Under the contract, Tom agrees to build the house according to Philip’s specifications and Philip agrees to pay Tom $1 million if Philip is satisfied with the work. In this case, the condition precedent to Philip’s obligation to pay the contract price is his satisfaction with Tom’s work.

The main issue that arises in situations like this is how to measure someone’s personal satisfaction and the question is whether satisfaction is measured by the actual party’s satisfaction or by the more objective standard of the reasonable person’s satisfaction.

The answer to this question depends on what the subject of the contract is. If the contract is a construction or manufacturing contract or any kind of contract that involves mechanical fitness or marketability, satisfaction is measured by the reasonable man standard. For example:

Philip hires Tom to build him a house. Under the contract, Tom agrees to build the house according to Philip’s specifications and Philip agrees to pay Tom $1 million if Philip is satisfied with the work. In this situation, if a reasonable person would be satisfied with Tom’s work, Philip must pay Tom the contract price, even if he himself hates the way the house looks. Because we use the reasonable man standard, it is immaterial what Philip himself thinks. See Duplex Safety Boiler Co. v. Garden, 101 N.Y. 387 (1886).

However, where a contract involves personal taste or judgments, the condition of satisfaction will be determined by the actual person’s satisfaction. For example:

Philip hires Picasso to paint Philip’s portrait. Picasso agrees to paint the portrait and Philip agrees to pay Picasso $1,000 if he is satisfied with the work. In this situation, Philip does not have to pay Picasso if he himself is not satisfied with the work. See Mattei v. Hopper, 51 Cal.2d 119 (1958).

However, please note that where actual personal satisfaction is required, the party’s dissatisfaction must be in good faith. If his expression of dissatisfaction is not in good faith, the court will consider the condition of satisfaction to have been fulfilled. For example:

Philip hires Picasso to paint Philip’s portrait. Picasso agrees to paint the portrait and Philip agrees to pay Picasso $1,000 if he is satisfied with the work. If Philip says he is not happy with the work and his dissatisfaction is in good faith, he will not have to pay the contract price because the condition of satisfaction has not been met. However, if his dissatisfaction is not in good faith, the court will consider the satisfaction condition fulfilled and Philip will have to pay Picasso the contract price.

Additionally, if the required condition to be met is the satisfaction of a third person, the actual personal satisfaction of the third person is what determines whether or not the condition has been met. For example:

Philip hires Tom to build him a house. Under the contract, Tom agrees to build the house according to Philip’s specifications and Philip agrees to pay Tom $1 million if Philip’s architect is satisfied with the work. In this situation, the architect’s actual personal satisfaction will be used to measure whether or not the condition has been fulfilled. Therefore, if the architect is not satisfied, Philip will not have to pay Tom. However, the architect’s dissatisfaction must be in good faith. See Thompson – Starrett Co. v. La Belle Iron Works, 17 F.2d 536 (2nd Cir. 1927).

There are other issues that arise when the payment of the contract price hinges on a condition. Consider this example:

The Boston Red Sox agree on a contract with Ramon Garcia under which Garcia will play for the team for one year and the team will pay him $500,000. The contract states that Garcia will get the entire $500,000 in one lump sum at the end of the season “one week after the league distributes each team’s share of the television revenues."

The issue that arises here is what happens if the condition is not fulfilled? Is the duty to pay enforceable only if the condition is satisfied or is the duty to pay unconditional but subject to postponement either until the condition is fulfilled or for a reasonable time.

To put this in the context of our example, if the league does not distribute the television revenues, do the Red Sox not have to pay Garcia at all or are they required to pay Garcia anyway after a postponement either until the condition is met or until a reasonable amount of time passes?

Most courts agree that situations like this do not excuse payment and that there will be a duty to pay even if this particular condition is not met. See J. Dyer Co. v. Bishop International Engineering Co., 303 F.2d 655 (6th Cir. 1962).

Excusing of conditions

The previous example notwithstanding, there is usually no duty to perform a contract unless the express condition has been fulfilled. However, there are situations in which conditions may be excused so that the duty to perform is there even though the condition has not been met.

First, a condition will be excused if the party that benefits from the condition wrongfully interferes with the fulfillment of the condition. For example:

The Boston Red Sox and Ramon Garcia agree on a contract in which Garcia will play for the Red Sox for one season and the team will pay Garcia $500,000. The contract also says that if Garcia plays in all 162 games of the season, the team will give him a $100,000 bonus. Garcia plays in the first 161 games of the season and is ready to play in the last game of the season as well, thereby earning his bonus. However, the team’s General Manager, Theo, calls Grady, the team’s Manager, and tells him to keep Garcia out of the game. As a result, Garcia does not play in every game of the season. In this case Garcia will be awarded his bonus anyway because the team wrongfully interfered with the fulfillment of the condition.

Second, many contracts, requirement and output contracts in particular, are conditioned on the parties to the contract actually staying in business. For example:

Squeeze Me Juice Co. agrees to buy all of the oranges that Sunshine Groves produces, and Sunshine agrees to sell Squeeze Me all of the oranges it produces. This contract is predicated on both Sunshine and Squeeze Me staying in business.

The question is, what happens if Sunshine goes out of business? Will the condition that Sunshine produce oranges be considered a valid condition that is now unfulfilled so that Sunshine does not have to sell anything to Squeeze Me, or will the condition be excused so that Sunshine still has to sell to Squeeze me and Squeeze Me can now sue Sunshine for not producing any oranges?

Typically, courts will protect a company from liability if they close for economic reasons that are not connected to the contract they have with the other party. However, closing down to avoid losses on the actual contract itself will not protect them from liability.

To put it in the context of our example, if Sunshine closes down because a natural disaster has destroyed its crop, or for some other valid economic reason that has nothing to do with its agreement with Squeeze Me, the court will consider the condition of staying in business a valid unfulfilled condition which frees Sunshine of their obligations to Squeeze Me and insulates Sunshine from liability.

However, if, for example, the price of oranges drops so that Sunshine’s contract with Squeeze Me is no longer profitable and Sunshine closes down to avoid losing money on the Squeeze Me deal, the court will not protect them from liability.

Third, a party can waive his right to the fulfillment of conditions on which the duty of performance hinges. For example:

The Red Sox and Ramon Garcia agree on a contract under which Garcia will be paid $500,000 and, if he plays in every game of the season, will be awarded a $100,000 bonus. The Red Sox, if they choose to, are free to waive that condition and pay Garcia the extra $100,000 even if he does not play in every game.

Fourth, if the condition becomes impossible or impractical to fulfill, it will be excused so long as it is not a material part of the contract.

Implied Conditions

Many times, there are conditions that are not expressly written into a contract but are implied by the terms of the contract.

First, there is an implied condition of performance. This is simply an implied condition that establishes that one party’s performance hinges on the other party’s performance. For example:

The Red Sox and Ramon Garcia agree on a contract under which Garcia will play for the team for one year and the team will pay Garcia $500,000. The implied condition to the team’s duty to pay Garcia is that Garcia actually plays for the team.

Second, there is an implied condition of cooperation under which the obligation of one party to perform on the contract is conditioned on the other party’s cooperation in that performance. For example:

The Red Sox and Ramon Garcia agree on a contract under which Garcia will play for the team for one year and the team will pay Garcia $500,000. An implied condition of Garcia’s playing for the team is that they provide him with access to the stadium and give him the proper equipment and uniform so that he can play.

Finally, there is an implied condition of notice, under which the non-performing party must give the party with the duty to perform notice that performance is due. This condition is most common in situations where the performing party could not reasonably know that performance was due. For example:

Charley the chimney sweep signs a contract with Marry Poppins under which, he will clear her chimney every time it gets clogged for the next five years and Mary will pay Charlie $10,000 per year. In this situation, there is no way that Charley can reasonably be expected to know that the chimney is clogged unless Mary actually tells him. Therefore, implied in this contract is a condition that Mary will give Charlie notice that her chimney is clogged and that his performance is due.