parent nodes: condition precedent | Contracts | Howard v FCIC | Mascioni v IB Miller Inc | Royal-Globe Ins Co v Craven

condition precedent

A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
Rest 2d Contracts 224

(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.
Rest 2d Contracts 227

To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.
Rest 2d Contracts 229

Interpretation
The usual problem is determining whether a contract term constitutes a promise for which damages could be sought on breach or a condition that absolves a party of performance altogether. Courts generally presume that a term is a promise rather than a condition, in order to generally avoid the risk of a party's forfeiting its rights. Cf. the penalty and unconscionability doctrines. (Note that if a term is described as a promise rather than a condition precedent, both parties would still owe the duties (breached or not) pledged to each other.)

A condition precedent need not be explicitly described as such in a contract. But the existence of one term as an explicit condition precedent may by negative implication make other terms promises and not conditions. See, e.g., Howard v FCIC.

One useful factor in determining whether a term is a condition or promise is its necessity to a party's performance. Cf. Howard v FCIC (where the insurer may not have been able to figure out whether the condition precedent in the earlier clause was fulfilled unless they could complete an inspection of the destroyed crop); Royal-Globe Ins Co v Craven (requiring "prompt" notification of car crash claim to insurer before claim paid); see also the impossibility doctrine.

Another, similar, factor in interpreting a potential condition is its value to a party. Royal-Globe Ins Co v Craven (clause requiring "prompt" notice of insurance claims, where clause would have no purpose otherwise)

Note also Rest 2d Contracts 227, which prefers an interpretation that reduces the risk of forfeiture by an obligee.

Note that the impossibility doctrine is often phrased in terms of an implied condition. [Taylor v Caldwell] (finding implied condition for lease of music hall that it would continue to exist, thus absolving lessor when hall destroyed). Conversely, an obligee may be excused from performance of a condition precedent on grounds of impossibility. Royal-Globe Ins Co v Craven (excusing 24-hour-time limit for filing insurance claim when claimant was in hospital).
A party may waive a condition precedent to its own performance; however, it may also withdraw that waiver before the other party has acted in reliance on that waiver. Royal-Globe Ins Co v Craven (refusing promissory estoppel argument to breached timeliness condition to insurance policy, where insurance company had communicated with insured, but insured had not changed her behavior as a result).

A condition requiring a time limit may be avoided if the obligee is under a disability at the time when the time-limited condition would be required. Royal-Globe Ins Co v Craven (tolling 24-hour notice requirement for hit-and-run claims when insured was in hospital for 23 days) .

Finally, under Rest 2d Contracts 229, above, a condition may be unenforceable if it would cause "disproportionate forfeiture" and the condition was not a "material part of the agreed exchange." Thus, conditions precedent that constitute adhesion contracts may be unenforceable. [Aetna Cas and Sur Co v Murphy]. However, such a judgment must take into consideration the interests of the party offering the adhesive condition, and the burden of proof is on the insured to show a lack of prejudice against the insurer if the condition is voided. [Aetna Cas and Sur Co v Murphy] (enforcing standardized insurance contract in which insured was to notify insurer "as soon as practicable" of potential claim against insured). Generally, the purpose or value of the condition to the obligor is relevant to its enforceability as a matter of public policy. Cf. [Inman v Clyde Hall Drilling Co] (finding no such unlawful purpose)

Likewise, a condition will less likely be avoided if the party seeking avoidance was aware of its existence at the time of contracting. [Inman v Clye Hall Drilling Co] (employee unsuccessfully seeking to avoid condition in his employment contract of which he was aware, requiring notice and delay before filing employment-related suit against employer).

Conditions of satisfaction

When it is a condition of an obligor's duty that he be satisfied with respect to the obligee's performance or with respect to something else, and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied.
Rest 2d Contracts 228

. Courts are generally hesitant to enforce conditions of satisfaction where they could be used to cause forfeiture. An invalid condition of satisfaction will be excised from the contract. A condition of satisfaction is more likely valid where the promised condition involves the "fancy, taste, sensibility, or judgment" of the party for whose benefit it was made, [Fursmidt v Hotel Abbey Holding Corp], or where the damages caused by failure of satisfaction would be hard to prove.

Courts use a variety of theories to attack conditions precedent of satisfaction:
forfeiture
Cases finding condition rather than promise

Mascioni v IB Miller Inc (contractor's promise to sub to make payments "as received from the owner," who later defaulted)
Royal-Globe Ins Co v Craven
[Inman v Clyde Hall Drilling Co] (ex-employee's promise to provide 30-day notice and then wait 6 months before suing on grounds of employment not unenforceable on public policy grounds, where no unlawful purpose found)
[Aetna Cas and Sur Co v Murphy] (enforcing standardized insurance contract in which insured was to notify insurer "as soon as practicable" of potential claim against insured, where insured waited three years to implead insurer as co-defendant)

Cases finding promise rather than condition

Howard v FCIC (stipulation in insurance contract that damaged crops "shall not be destroyed" until insurer could inspect, where other parts of contract explicitly listed as conditions precedent)
[Ewell v Landing]



[alias: condition of satisfaction]
[alias: conditions precedent]
[alias: condition]