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San Diego Business Contracts: What is a “Condition Precedent?”
In San Diego and California, for a business contract, a “condition precedent” is simply some obligation that one party to the contract must perform before the other must perform his, her, or its obligation(s). A simple example would be a contract for the provision of 10,000 cellphone covers. The contract could be written so that delivery of the goods would be a “condition precedent” for payment; or, vice versa — payment must be made as a “condition precedent” before the goods will be delivered. A good corporate lawyer can help. This article will discuss the legal principles related to a condition precedent and also conditions concurrent and subsequent.
San Diego Business Contracts: Legal Principles
Under California law, parties to a contract may agree that a right or duty is conditional upon the occurrence or nonoccurrence of an act or event. Such conditions will be enforced. See Platt Pacific, Inc. v. Andelson, 6 Cal.4th 307 (Cal. Supreme Court 1993). The idea of “conditional” has its common ordinary meaning — one obligation depends upon and does not come into effect or being until the condition occurs (or fails to occur).
Under the Civil Code, conditions can be precedent, concurrent, or subsequent. See Cal. Civil Code, §§ 1434-1438. A condition precedent is either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises. Conditions concurrent are those which are mutually dependent and are to be performed at the same time. A condition subsequent is one referring to a future event, upon the happening of which the obligation becomes no longer binding upon the other party, if he chooses to avail himself of the condition.
Importantly, these conditions do not have to be those of the parties to the contract. In a building context, the parties might agree to the sale of certain real property, but only if the relevant city rezones the property for business use within a specified amount of time. The rezoning is a condition precedent and its nonoccurrence relieves the buyer of any obligation to consummate the purchase.
In the rezoning example, determining whether the condition has been met is easy. But sometimes, conditions precedent are more vague and uncertain. When interpreting contracts, issues of conditions precedent (and concurrent) are evaluated based on the unique facts of the case, the contract, and the intent of the parties. Where a declaration that a condition precedent is discretionary with one party to the contract, that declaration must be made within the bounds of the covenant of good faith and fair dealing. See discussion here. Take this example: a homeowner hires a carpenter to construct some built-in bookshelves. The owner insists that payment will only be made on the condition — precedent — that shelves be constructed to the highest level of craftsmanship “to be approved by Owner at Owner’s sole discretion.” The owners’ approval cannot be unreasonably withheld; otherwise, the owner might well be liable for breach of the covenant of good faith.
Contact San Diego Corporate Law Today
If you would like more information with respect to business contracts in general, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.
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