Conditions Precedent v Conditions Subsequent
A distinction is made between conditions precedent and conditions subsequent. A condition precedent (or precondition) is a condition which suspends the principal obligations under the contract until it is performed. A condition subsequent is a condition which terminates a contract that has fully come into being.
A condition precedent (a pre-condition) must be complied with before a contract comes into being. Where a condition precedent does not occur, the principal contract will not come into existence until the condition is complied with. There is no right or remedy available if the condition does not occur. Restitution will usually apply in order to reverse any unjust enrichment that has occurred.
A condition subsequent is one that may arise and apply after the contract exists, but on the occurrence of which, the contract ceases and terminates. The effect is to terminate the obligations of both or either party. Restitution and unwinding may be thereby required.
In the case of some kinds of condition precedent, there will be no contract if it is not satisfied. Other types of condition must be performed by one party, and are pre-conditions to the obligations of the other party.
The condition precedent may be expressed as a neutral event, which is outside the control of the parties. It may be an event, which is partly within the control of one party, so that that party must use endeavours, expressly or impliedly, to achieve compliance with the condition precedent.
In the case of a condition precedent where neither party has any express or implied obligations, then the parties may do nothing and the contract may never come into being, without consequences provide for either party.
Obligation to Achieve Condition Precedent
Some apparent conditions entail absolute obligations for one or other party. A promissory condition involves an element of promise or contractual obligation on the part of one or both parties. If no express provision is made, it is a question of interpretation in the circumstances as to whether one or the other or both parties are obliged to take steps to ensure that the condition precedent is satisfied. If this is so, then there will be express or implied obligations in that regard.
Where there is a condition precedent there may be an obligation on one party to use best endeavours or reasonable endeavours to ensure that it occurs. The obligation is unlikely to be absolute. It is usually an obligation to use reasonable endeavours. Disputes may arise as to whether a party has taken sufficient steps to attempt to cause the condition to be achieved.
It may be implied that where the condition relates to a matter in one party’s control, that that party must use reasonable best endeavours to fulfil the condition. Many conditions precedent will import an obligation on one party to use reasonable or best endeavours to ensure that is achieved.
Accordingly, in the case of a contract to purchase land which is conditional upon obtaining mortgage finance, there is likely to be an express or implied obligation on the prospective buyer to use reasonable endeavours to obtain mortgage finance. The buyer must make genuine efforts to obtain the approval.
Promissory or Suspensive
It is a question of interpretation as to whether a condition precedent is such as to prevent a contract coming into being or be such as to suspend a contract that is in existence.
A “contingent” condition depends on an independent event, for which neither party is responsible. It is usually of its nature, outside of their control. If the contingent condition is entirely outside the control of the parties, then there may simply be no contract at all. Its terms may be insufficiently certain to constitute a legally binding agreement.
In other contexts, a condition precedent may suspend the obligations of one or both parties. The contract may be binding, but be suspended. The contract may exist but it may be unenforceable until the condition is completed.
Waiver of Condition
A party may waive a condition precedent where it is wholly in his favour. It may be waived unilaterally. If it is not wholly in his favour, then it may not be waived without the consent of both parties.
Disputes sometimes arise as to whether a condition is for the benefit of one or both parties. Where there is a change in circumstances in a land sale contracts, subject to a condition precedent, a buyer in a rising market may seek to waive the condition. The seller may be able to point to elements of the pre-condition (e.g. a planning condition) being partly for his benefit (e.g. it benefits adjoining land owned by him).
Order of Performance I
The obligations of one party may be pre-conditional on performance by the other party of the other’s obligation. Other obligations may have significant elements of interdependence. An obligation in relation to delivery and completion of works and services within the required time limit may be dependent on the other party having performed certain prior steps on time.
If this is so, what might otherwise be a breach of the innominate term, may not be so in the circumstances. Accordingly, a failure to notify promptly on the claimant’s part may cause him to lose his right to terminate if the other party fails to perform within certain timelines.
Order of Performance II
It is generally a matter of the interpretation of the contract as to which person must perform his obligations first. The obligation to pay and deliver goods is presumed to be simultaneous under the Sale of Goods Act.
In other cases, the circumstances will imply which obligation must be performed first, if the matter is not expressly agreed.
In some cases, such as for payment of a bus fare, the convention is that payment is made in advance. In contrast, payment of a taxi fare is made after the journey has been completed.
The premiums on insurance policies are paid in advance. A meal is usually paid for afterwards.
In the case of a building contract, payment may be made in advance, in arrears or most commonly in installments against work done and certified.
There is no absolute rule and the parties are free to contract as they see fit.
Mutual and Independent Conditions
Conditions may be mutual or independent. This is a question of the interpretation of the contract in the circumstances. Conditions are independent when either party may recover damages for breach of a condition in its favour, but where it is no excuse for the defendant that the claimant has breached his other independent obligations in his favour.
Mutual conditions may be required to be performed at the same time. Where one party is ready willing and able and offers to perform and the other refuses or neglects to perform, he may take action.
The Sale of Goods Acts provides that Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods.
Terms as to Time
Terms in relation to time, will generally not be conditions. Time is usually presumed not to be critical. It is said not to be “of the essence”. The courts of equity, tended in the interests of justice, not to treat time as being of the essence in contracts. With the merger of law and equity, the equitable position prevailed.
In some cases, a contract term as to a time-based obligation may be so important as to be interpreted as a condition. In these cases, time is “of the essence”, and a failure to perform the obligation on time entitles the other party to terminate its own obligations.
Whether or not a term is a condition in the sense that it carries the right to terminate for breach must be considered in the light of its importance in the circumstances. The fact that a particular term is capable of having serious and trivial breaches, or at least fundamental and less fundamental breaches, may point to its being an innominate term.
Time of the Essence
The question whether time is of the essence can be of critical importance. In some lines of business and trades, performance on time is critical. This may occur in relation to transport, maritime matters and financial services, where it is a practical necessity for the integrity and functioning of the particular industry or market. In some sectors, time may be assumed to be of the essence.
If the time obligations are stipulated as strict, then they are likely to be upheld as such. In this case, the failure to perform when due entitles the innocent party to terminate his obligation under the contract and sue for any loss.
The courts lean against a forfeiture. Where making time of the essence involves a disproportionate loss to the other party, the courts are exacting in requiring strict compliance with the relevant conditions.
Making Time of the Essence
Where time is not of the essence, it is generally possible to make it so. Where the other party has not performed on time, the innocent party may give a further reasonable time to perform, such further time being designated to be “of the essence”. If the other party does not perform within this extended time, the innocent party may terminate. The further time allowed must be reasonable in the circumstances.
Commonly, written contracts provide for the making of time of the essence. The notice and time required is specified. Typically, the innocent party may serve notice of a new final date for performance. Performance by the latest date is a fundamental term, breach of which entitles the innocent party to terminate the contract.
References and Sources
Irish Textbooks and Casebooks
Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch 9
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017) Ch 19
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
Chen-Wishart, Contract Law 5th Ed (2015)
Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)
Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.
Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
Duxbury, Robert (2011) Contract law. 2nd Ed.
Halson, Roger (2012) Contract law. 2nd Ed.
Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)
O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)
Peel, and Treitel, The law of contract. 13th Ed. (2011).
Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
Richards, P Law of contract. 10th Ed. (2011)
Stone, R. The Modern law of Contract. 10th Ed. (2013)
Treitel, G. H. An outline of the law of contract. 6th Ed (2014).
Turner, C Unlocking contract law. 4th Ed. (2014).
Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).
Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)
McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)
Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)
Burrows, A. S. A Casebook on Contract. 4th Ed.
Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)
UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the latest edition.