AuthorFranklin G. Snyder, Mark Edwin Burge
Unit 19
Part Three
Conditional Obligations. Parties to contracts make promises that they will do
things. But sometimes those promises are supposed to be performed only if something
happens to trigger a duty. Suppose, for example, you buy a single-premium life
insurance policy, which costs you $100,000 but will pay your estate $2 million
whenever you die. You, the insured, have no obligation to die. But the insurance
company has no obligation to pay money to your estate until you do. The contract is
in force, and you have fully performed, but the insurer’s duty is conditional on the
occurrence of your death. If for some reason you to manage to live forever, the contract
will last forever but you will never get the money. The best way to think of conditions
is as triggers to obligations that occur within contracts.
Two broad categories of conditions exist: express and implied. In both, the party
refusing to perform claims its duty was never triggered because the other party did
not satisfy the condition. The party seeking performance may claim variously that (1)
properly interpreted, the claimed condition is not a condition at all; (2) that there is
a condition, but it was in fact complied with; (3) even if the condition was not strictly
complied with, there is a good excuse for not doing so; or (4) some or all of the above.
Spotting Express Conditions. You can often recognize express conditions by
phrases like “if . . . then,” “provided that,” “upon the occurrence of,” and the like. The
established hornbook law, repeated by many courts, is that express conditions like
these must be complied with strictly. But, as you will also see in this unit, there are
ways that a party can get by with something less than strict compliance.
Unseen Implied Conditions. Implied or constructive conditions are those read
into the contract by courts, in much the same way as other implied terms. Conditions
are usually implied when it appears that the parties intended that performance occur
in a particular sequence. The leading English case is Kingston v. Preston, 99 Eng.
Rep. 437 (K.B. 1773), which involved the sale of a business. The seller agreed to
convey the business, and the buyer agreed to put up a bond to ensure payment for
the business. The contract was silent, however, as to which was supposed to happen
first. The King’s Bench held that, by the nature of things, the seller should not have
to convey the business until after the bond had been postedto do it the other way
around would have been absurd, as the whole point of the bond was to protect the
Courts tend to be rather cautious about implying conditions, but when it seems
clear that the parties must have intended that one performance be contingent on
another, they will do so.
Sections 224 through 230 of the Restatement (Second) of Contracts attempt to
distill the commonand common lawrules regarding conditions. Reviewing those
sections could provide you some helpful context. As with all sections of the
Restatement, we caution you be careful not to take these as stating exclusive or
universal rules on point. As with all areas of judge-made common law, only the case
authority from that jurisdiction is controlling. Thus, you should always read cases
carefully to determine any state’s actual version of a legal rule.
Cases and Materials
Court of Appeals of Texas, Fourteenth DistrictHouston
2003 Tex. App. LEXIS 9185
[North Houston International owned an office building, and sought a
commercial mortgage on the property from Paine Webber Real Estate Investments
(“PW”). PW and North Houston subsequently entered into a letter agreement for a
loan commitment, and North Houston paid PW $45,000 to cover its application fee
and expenses in the process. The Commitment Letter expressly required that North
Houston obtain estoppel certificates
from all tenants, including the building’s anchor
[When lender is refinancing the mortgage on a building that is leased to another, the lender
wants to be sure there are no hidden problems with the lease that might allow the tenant to pay less
or escape the lease entirely which might endanger the lender ’s chance of getting repaid. The lender
wants to be aware of any disputes between owner and tenant, of any alleged modifications to the lease,
of the amount of prepaid rent, and so forth. Thus, commercial leases usually provide that ten ants, on
proper request from the landlord, must execute an “estoppel certificate covering such issues. These
certificates state that the lender is entitled to rely on the tenants representations, and that the tenant
thus would be estopped from raising these arguments later.Eds.]

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