Types of Conditions in a Contract
The types of conditions in a contract can vary, but common ones are conditions precedent, conditions concurrent and conditions concurrent.3 min read
The types of conditions in a contract can vary, but common ones include:
- Conditions precedent.
- Conditions concurrent.
- Conditions subsequent.
What Is a Condition in a Contract?
A condition in a contract is an event or act that obligates a party to perform an action or render a performance as specified in the contract. Basically, it's a certain qualification that's placed on a promise.
A condition precedent specifies an event that must happen before a person is obligated to perform the duties specified in the contract.
An example of this is if an employer tells an employee they will receive a bonus of $600 if they complete an accounting course. Until the employee completes the course, the employer is not liable to pay the employee. However, once the employee completes the course, the employer has to pay up.
When put in the context of sale and purchase agreements, some condition precedents might include:
- Obtaining clearances from regulatory authorities.
- Obtaining consents from a supplier.
- Passing resolutions between the seller or buyer.
- No material changes in relation to the target company.
You can also use condition precedents in real estate transactions. An example here might include matters related to financing a mortgage or the physical condition of the property being sold.
A condition concurrent is required when the two parties in an agreement need to take actions at the same time. Because of this, neither party is legally obligated to perform their part of the contract until the other side starts performing their part of the contract. Therefore, if the two parties are serious about the deal, one of them needs to take action to get the ball rolling.
Usually, concurrent conditions are used when selling goods and in the conveyance of land.
A condition subsequent always stipulates a condition that happens after the formation of a contract. It relates to a specific incident that can release one party from the actions listed in the contract. You might know it better as an escape clause, and it terminates the contract if specific circumstances arise.
Condition subsequents can be used in deeds to real property. In this case, they might describe an event which would terminate a person's interest in the property, such as a divorce.
An example of a condition subsequent in action could be an insurance contract. Imagine this contract stipulates the insured must file a claim within one year of a loss. If the insured's building burns down, they must file their suit with the insurer during this time frame, otherwise the condition subsequent will end the insurer's liability to take action.
Why Add Conditions to Your Contract?
Conditions are a good way to both bind a party to a certain standard of performance as well as render an agreement invalid if something happens. In particular, express conditions that avoid using specific language to define events can protect a party in the event of a lawsuit. Keep in mind that some conditions can be implied, and therefore are legally enforceable or unenforceable, even though they aren't in writing.
What Is a Breach of Contract?
If you fail to live up to the conditions of a contract, it's known as a breach of contract. Depending on the contract's nature, this might be something like:
- Failing to finish a job.
- Refusing to pay for work that's been completed.
- Submitting work that is inferior to the expected quality.
Breaches of contract don't always have to involve purchases. If you've signed a noncompete agreement, you might breach your contract if you work for a competing business. You might also be in breach if you're always arriving late without an excuse or not submitting correct documentation.
The Importance of Making Sure Your Conditions Are Valid
You need to make sure your conditions are acceptable if you want your contract to be valid. Any mistakes, even if they're just misunderstandings, can invalidate the contract.
An example of this is if you create a purchase contract for a car. If both parties get the year of the car wrong, the contract could be considered invalid. Other reasons a contract could be invalid is if conditions are unfair or if conditions are favorable to one party in particular.
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