How To Properly Set Up An Agreement Where Your And / Or Their Obligations Are Conditional

Parties entering into agreements aren't always liable to do a thing or act in a certain manner. Let's assume that the two companies, A and B, are planning to work together. If A is supposed to deliver goods to B but only after B has handed over a monetary advance, A isn't under any obligation, unless it receives the money. However, for the above to stand effective, the terms of the agreement must be clear with everything written in the best interest of both.

Keeping this as the core of the discussion, we draft this article outlining what a “condition precedent'' is and how you should set the agreement when the obligations are conditional.

What Is The Condition Precedent?

A “condition precedent” is a term that best describes an event or any condition which must pass so that the terms in a specific contract turn effective. In simple terms, it is the condition that needs to be fulfilled before imposing any obligation on the parties to act according to what has been said in the contract.

With respect to the law, the condition precedent is the stipulation outlining conditions that must be met for the successful execution of all mentioned in a contract. Business organizations often lay conditions to regulate the occurrence of activities.

Let's say, you deal in the real estate business. Every time you set out to sign a mortgage contract, it is important to first assess and determine the condition of the property. Only after the condition is met, can the parties enter into the mortgage contract.

Why Is The Contract Precedent Clause Important?

Not all contracts require you to mention condition precedent. However, the ones that have significant conditions must add a separate clause in the contract that specifically mentions the conditions and how they are implemented. This helps add transparency between the parties making it clear for all. In the event of disputes, either of the parties can bring up the contract to resolve them without any hassle.

How To Draft Contracts Effectively?

Having said that the inclusion of conditions within the contract simplifies the arrangement between the parties, what's more, important here is how the clause is added in the contract. Often, it so happens that even though the contract has conditional obligations, failure to specify them raises questions. Hence, there is the need to properly set the agreement in case of conditional obligations.

To help you with the same, here we outline a few pointers to take note of when creating the contract:

Mention The Object Of Condition

The first thing to keep track of is the object of the condition. What would cease to exist if the condition isn't fulfilled? In other words, what would come to life given that the condition is met? It is necessary that utmost care is taken when the same is added within the contract. Misinformation or incomplete information might affect the course of action in the future.

2.Specify The Condition

Make sure you are clear on what the condition is and who is expected to fulfill the same. In case there exists any tenure or duration for the fulfillment of the same, it needs to be mentioned as well. When you have everything set and written down, it becomes easier to deal with problems.

3.Breach

It is expected that if the condition isn't fulfilled, the object would cease to exist. However, it is wise to mention in the contract, the aftermath of not abiding by the condition. This helps both the parties to be on clear terms from the beginning.

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Yoel Molina, Esq. (AKA “Mo”)

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