Restat 2d of Contracts, § 224

• Restatement of the Law, Second, Contracts
• Chapter 9- The Scope of Contractual Obligations
• Topic 5- Conditions and Similar Events
• § 224 Condition Defined

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.

Comment:

a.  "Condition" limited to event.  "Condition" is used in this Restatement to denote an event which qualifies a duty under a contract. See the Introductory Note to this Topic. It is recognized that "condition" is used with a wide variety of other meanings in legal discourse. Sometimes it is used to denote an event that limits or qualifies a transfer of property. In the law of trusts, for example, it is used to denote an event such as the death of the settlor that qualifies his disposition of property in trust. See Restatement, Second, Trusts § 360. See also the rules on "conditional" delivery (§ 103) and "conditional" assignment (§§ 103, 331). Sometimes it is used to refer to a term (§ 5) in an agreement that makes an event a condition, or more broadly to refer to any term in an agreement (e.g., "standard conditions of sale"). For the sake of precision, "condition" is not used here in these other senses.

Illustration:

1. A contracts to sell and B to buy goods pursuant to a writing which provides, under the heading "Conditions of Sale," that "the obligations of the parties are conditional on B obtaining from X Bank by June 30 a letter of credit" on stated terms. The quoted language is a term of the agreement (§ 5), not a condition. The event referred to by the term, obtaining the letter of credit by June 30, is a condition.

b.  Uncertainty of event.  Whether the reason for making an event a condition is to shift to the obligee the risk of its non-occurrence, or whether it is to induce the obligee to cause the event to occur (see Introductory Note to this Topic), there is inherent in the concept of condition some degree of uncertainty as to the occurrence of the event. Therefore, the mere passage of time, as to which there is no uncertainty, is not a condition and a duty is unconditional if nothing but the passage of time is necessary to give rise to a duty of performance. Moreover, an event is not a condition, even though its occurrence is uncertain, if it is referred to merely to measure the passage of time after which an obligor is to perform. See Comment b to § 227. Performance under a contract becomes due when all necessary events, including any conditions and the passage of any required time, have occurred so that a failure of performance will be a breach. See §§ 231-43.

The event need not, in order to be a condition, be one that is to occur after the making of the contract, although that is commonly the case. It may relate to the present or even to the past, as is the case where a marine policy insures against a loss that may already have occurred. Furthermore, a duty may be conditioned upon the failure of something to happen rather than upon its happening, and in that case its failure to happen is the event that is the condition.

Illustrations:

2. A tells B, "If you will paint my house, I will pay you $ 1,000 on condition that 30 days have passed after you have finished." B paints A's house. Although A is not under a duty to pay B $ 1,000 until 30 days have passed, the passage of that time is not a condition of A's duty to pay B $ 1,000.

3. A contracts to sell and B to buy goods to be shipped "C.I.F.," payment to be "on arrival of goods." Risk of loss of the goods passes from A to B when A, having otherwise complied with the C.I.F. term of the contract, puts the goods in the possession of the carrier (Uniform Commercial Code § 2-320(2)). If the goods are lost in transit, B is under a duty to pay the price when the goods should have arrived (Uniform Commercial Code §§ 2-709(1)(a), 2-321(3)). The arrival of the goods is not a condition of B's duty to pay for the goods.

c.  Necessity of a contract.  In order for an event to be a condition, it must qualify a duty under an existing contract. Events which are part of the process of formation of a contract, such as offer and acceptance, are therefore excluded under the definition in this section. It is not customary to call such events conditions. But cf. § 36(2) ("condition of acceptance"). For the most part, they are required by law and may not be dispensed with by the parties, while conditions are the result of, or at least subject to, agreement. Where, however, an offer has become an option contract, e.g., by the payment of a dollar (§ 87), the acceptance is a condition under the definition in this section.

Illustration:

4. A tells B, "I promise to pay you $ 1,000 if you paint my house." B begins to paint A's house. Since B's beginning of the invited performance gives rise to an option contract, B's completion of performance is a condition of A's duty under that contract to pay B $ 1,000. See § 45.

d.  Relationship of conditions.  A duty may be subject to any number of conditions, which may be related to each other in various ways. They may be cumulative so that performance will not become due unless all of them occur. They may be alternative so that performance may become due if any one of them occurs. Or some may be cumulative and some alternative. Furthermore, a condition may qualify the duties of both parties. Cf. § 217.

Illustrations:

5. A, as the result of financial reverses, sells B a valuable painting for $ 1,000,000, but reserves a right to repurchase it by tendering the same price on or before August 18 if he again finds himself in such a financial condition that he can keep it for his personal enjoyment. A's tender of $ 1,000,000 by August 18 and his being in such financial condition that he can keep the painting for his personal enjoyment are cumulative conditions and redelivery of the painting does not become due unless both of them occur.

6. A purchases land from Mrs. B, who is unable to get Mr. B to join her in signing the deed because they are engaged in divorce proceedings. A takes possession under a deed signed by Mrs. B, pays Mrs. B $ 10,000 and promises to pay an additional $ 5,000 "if, within one year, (1) Mr. and Mrs. B execute a quitclaim deed to A, or (2) Mrs. B furnishes A with a certificate of the death of Mr. B with Mrs. B surviving him, or (3) Mrs. B as a single person executes a quitclaim deed to A after having been awarded the land following the entry of a final decree of divorce from Mr. B." The three enumerated events are alternative conditions and A's payment of $ 5,000 to Mrs. B becomes due if any of them occurs.

7. A and B contract to merge their corporate holdings into a single new company. It is agreed that the project is not to be operative unless the parties raise $ 600,000 additional capital. The raising of the additional capital is a condition of the duties of both A and B. If it is not raised, neither A's nor B's performance becomes due.

e.  Occurrence of event as discharge.  Parties sometimes provide that the occurrence of an event, such as the failure of one of them to commence an action within a prescribed time, will extinguish a duty after performance has become due, along with any claim for breach. Such an event has often been called a "condition subsequent," while an event of the kind defined in this section has been called a "condition precedent." This terminology is not followed here. Since a "condition subsequent," so-called, is subject to the rules on discharge in § 230, and not to the following rules on conditions, it is not called a "condition" in this Restatement. Occasionally, although the language of an agreement says that if an event does not occur a duty is "extinguished," "discharged," or "terminated," it can be seen from the circumstances that the event must ordinarily occur before performance of the duty can be expected. When a court concludes that, for this reason, performance is not to become due unless the event occurs, the event is, in spite of the language, a condition of the duty. See § 227(3). See also Comment a to § 230.

Illustrations:

8. A insures B's property against theft. The policy provides that B's failure to notify A within 30 days after loss shall "terminate" A's duty to pay and that suit must be brought within one year after loss. Since it can be seen from the circumstances that notice must ordinarily be given before payment by A can be expected, B's notification of A within 30 days after loss is a condition of A's duty. B's bringing suit against A within a year after loss is not a condition of A's duty. B's failure to bring suit within that time will discharge A's duty after payment has become due, along with any claim for breach.

9. A and B make a contract under which A promises to pay B $ 10,000 in annual installments of $ 1,000 each, beginning the following January 1, with a provision that "no installments whether or not overdue and unpaid shall be payable in case of A's death within the 10 years." A's being alive is a condition of his duty to pay any installment. A's death within ten years will discharge his duty to pay any installment after payment has become due, along with any claim for breach.

f.  Sealed contracts.  The rules governing conditions stated in the Restatement of this Subject are applicable to sealed as well as unsealed contracts. The same rules have traditionally been applied to both types of contract with technical exceptions that are no longer of significance.

This Section revises former § 250 to eliminate the terms "condition precedent" and "condition subsequent." This terminology has long been criticized and has caused confusion when used in an attempt to answer questions related to the burdens of pleading and proof. See Holmes, The Common Law 317 (1881); Harnett and Thornton, The Insurance Condition Subsequent: A Needle in a Semantic Haystack, 17 Fordham L. Rev. 220 (1948). "Conditions subsequent" are dealt with in connection with the rules on discharge in § 230.

Conditions precedent are referred to simply as "conditions." The Section also abandons the use of "condition" in two senses, to refer to both the event and the term that makes the event a condition, and uses it only in the former sense. Former § 255 is therefore omitted as unnecessary. See 3A Corbin, Contracts §§ 627, 628 (1960 & Supp. 1980); 5 Williston, Contracts §§ 663-67A (1961).

Comment a.  Illustration 1 is new. See 3A Corbin, Contracts § 627 (1960).

Comment b.  Illustration 2 is new. See 3A Corbin, Contracts § 626 (1960). Illustration 3 is based on Illustration1 to former § 301.

Comment c.  When an event that is not normally part of the process of formation of contract is made an event upon which the performance of the contract is dependent, courts often describe it as a condition that must be performed before the contract comes into existence. See, e.g., City of Houston v. West, 563 S.W.2d 680 (Tex. 1978), ref. n.r.e.; Reporter's Note to Comment c to § 217. Similarly, inartistically drafted contracts may contain language such as: "this contract shall not come into existence until Event A occurs." As Illustration 7 suggests, it is better to view a contract as already in existence, but with the parties' respective performances subject to the specified event, which is a condition to their respective performances. However, there is no great substantive disparity between the terminology used in this Comment and descriptions of such events as conditions to the existence of the contract. This Comment excludes from the definition of condition only the elements of contracts, such as offer, acceptance and capacity, not specific events triggering performance simply because of the agreement of the parties. These latter, properly called conditions to the parties' performance, are what are often called conditions to the existence of the contract. Both this Comment and the case law agree that they are conditions. Illustration 4 is new.

Comment d.  This is based on former § 263. Illustration 5 is based on Youssoupoff v. Widener, 246 N.Y. 174, 158 N.E. 64 (1927). Illustration 6 is based on Wortman v. Jessen, 183 Neb. 274, 159 N.W.2d 564 (1968). Illustration 7 is based on Hicks v. Bush, 10 N.Y.2d 488, 225 N.Y.S.2d 34, 180 N.E.2d 425 (1962); see also Illustration 5 to § 243.

Comment e.  Illustrations 8 and 9 are based on Illustrations 1 and 4 to former § 259.

Comment f.  This is based on former § 256. No section is required to make this point. See Comment b to § 6; Introductory Note to Topic 3 of Chapter 4.

ALR Annotations:

Landlord and tenant: Tenant's rights under provision giving him pre-emptive right to purchase on terms offered by third person, where third person's offer is withdrawn before tenant exercises pre-emptive right. 46 A.L.R.3d 1377.
Validity of individual employment contract for specific term which contains provision that employee will perform if physically able, if health permits, or the like. 7 A.L.R.3d 898.

Digest System Key Numbers:

Contracts 218