CONDITIONAL CONTRACTS
A contract or a contractual obligation may be made conditional upon the occurrence of a future uncertain event, so that the contract or the contractual obligation only takes effect if the event occur or comes to an end if the event occurs. Hence, the contract is made dependent upon that future uncertain event such that the event has to take place to provide conclusiveness to the contract. These events when put out in a clear form are termed as “condition”.
A condition can be defined as “The promise of event/state of affairs/performance on whose fulfillment or non- fulfillment the contract or the enforcement of the performance of the parties depends is therefore, the condition in a conditional contract” or “some operative fact subsequent to acceptance and prior to discharge, a fact upon which the rights and duties of the parties depend”. These connote condition as an undertaking by both or anyone of the parties.
The employment of these conditions has lead to some general principles which can be used for drawing a conclusion:
i. Where a conditional contract of sale fixes a date for the completion of the sale, then the condition must be fulfilled by that date.
ii. Where a conditional contract of sale fixes no date for completion of the sale, then the condition must be fulfilled within a reasonable time.
iii. Where a conditional contract of sales fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principle.
iv. if fulfillment of a condition is prevented by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfillment would have operated to that party & disadvantage, the condition is deemed to be fulfilled while if fulfillment of a condition is brought about by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfillment operates to that party, advantage, the condition is deemed not to be fulfilled.
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We shall see that the undertaking, though largely taken up through express terms, can also be implied or construed from the nature of performance or other terms of the contract.
The construction can be different across the world due to domestic laws and difference in judicial application of those laws.
“NATURE OF A CONDITION”
The word “condition” has two connotations in the law of contract and it is sometimes used in a very loose sense. Therefore, it is often mixed up with the ‘condition’ stipulation
of the contract. Consequently, we need to discern and differentiate the ‘condition’ stipulation from a condition of the conditional contract. A ‘condition’ stipulation is the main purpose for which the contract is entered into while the word ‘condition’ may be used to describe some fact or event, on the existence or occurrence of which the some
or all of the rights and duties under the contract are made to depend. A further difference also arises between them in result of breach. While the breach of a condition leads to only non-existence or discharge of the contract, the breach of a ‘condition’ stipulation entitles the other party to damages. A condition must also have an impact on the operative part of the contract; else it is only a promise. A promise is made by one of the parties to create a duty or disability for the other party and its breach results in breach of the contract and a claim to damages. A condition differs since it discharges the duties until the time of the event and its breach does not repudiate the contract.
TYPES OF CONDITIONS IN CONDITIONAL CONTRACTS
The events laid down by the parties as conditions for a contract may differ based on time. The event may precede or be subsequent to the legal relations of the parties. The former is called suspensive and the latter resolutive.
SUSPENSIVE CONDITIONS; RESOLUTIVE CONDITIONS
For suspensive conditions, the obligations of the parties to perform their part of the contract are suspended until the condition on which the contract depends is fulfilled. The performance becomes due only when the condition is fulfilled. If the condition is not fulfilled then the contract does not come into existence or the parties are discharged of their obligations. While for resolutive conditions, the respective obligations of the parties herein are to be fulfilled after they agree to enter into a contract but they can still be made to retract their performances and the contract dissolved, on the happening of a specified event. It provides the party the right to take back. This condition may also be used as an escape clause where one of the parties terminates the contract on the non-fulfillment of an event decided upon.
OTHER TYPES OF CONDITIONS
The merchants and traders may use the conditions in unconventional and convenient forms. Succeeding forms are examples of the same created through observations.
CONCLUSION AND SUGGESTIONS
Although the source of provisions in the above-mentioned jurisdictions is different, their operations are the same. Upon the analysis of the interpretation in these jurisdictions it is clear that these conditions operate with the aim to provide uniformity and ensure that good faith is being exercised by the parties. The clauses in the contract are to be construed as a condition in such a way that they help achieve the intended aim of the parties. The intention, however, has to relate back to the time of formation of the agreement. It cannot be changed even if both the parties provide for an event contrary to the initially agreed upon terms. Consequentially, it becomes the duty of the court to interpret and lay down the general principles governing the working of these conditions. In this way, the courts
provide certainty to the operations of the conditions.
All of the jurisdictions attempt to be in consonance with the generally agreed upon practices. Therefore, with the aim of certainty, the operations in different jurisdictions ensure uniformity. This certainty, as seen from the analysis, is commonly based on the principles of reasonability and good faith to ensure fair dealing and put a burden of duty upon the parties to co-operate with each other. The operation must be such that it is beneficial from the standpoint of both the parties to the contract. The complex process of negotiating these clauses is, thus, simplified by these integrated and generally practiced principles. From the application of municipal laws in these jurisdictions, it can be seen that they do not comprehensively regulate the actions of the parties and there is still a void left for the judiciary to fill in cases of dispute. With the increasing desire for international acceptability, there has been formation of various conventions and principles such as Vienna Convention on International Sale of Goods, Principles of European Contract Law, INCOTERMS, UNIDROIT principles. With the internal legal system being incomplete to wholly regulate the measures taken by the parties, the jurisdictions should resort to the provisions in these conventions to ensure consistency in interpretation and lay down guidelines to prevent disputes. The history of these different municipalities helps these international bodies to understand and regulate the practices.
