Conditions

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 381-398

______________________________________________________________________________

UNIT 19: CONDITIONS 381

Unit 19

__________________________________________________________________

TERMS AND INTERPRETATION

Part Three

__________________________________________________________________

Conditions

FOCUS OF THIS UNIT

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

______________________________________________________________________________

382 CHAPTER VI: TERMS AND INTERPRETATION

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 posted—to do it the other way

around would have been absurd, as the whole point of the bond was to protect the

seller.

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 common—and common law—rules 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

NORTH HOUSTON INTERNATIONAL, L.L.C., v. PW REAL

ESTATE INVESTMENTS, INC.

Court of Appeals of Texas, Fourteenth District—Houston

2003 Tex. App. LEXIS 9185

LESLIE BROCK YATES, J.:

[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

1

from all tenants, including the building’s anchor

1

[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 tenant’s representations, and that the tenant

thus would be estopped from raising these arguments later.—Eds.]