Condition Precedent

The term condition precedent refers to something that must happen, or a circumstance that must exist, before something else will happen. This is a common issue in contract law, where one party is to perform his duties under the contract only after the other party has performed his. For instance, Bob will install the new air conditioner at Jack’s home only after Jack has paid the full amount due. In this case, payment is the condition precedent for the installation of the air conditioner. To explore this concept, consider the following condition precedent definition.

Definition of Condition Precedent

Noun

1. A contract provision specifying that one party must perform its duties before the other party will perform its duties under the contract.

What is Condition Precedent

A condition precedent is an event that must occur, or a state of affairs that must exist, before something else will occur. In contracts that refer to a condition precedent it is entirely possible that one party will never have to fulfill his duties, because the condition was not met. Condition precedent is a common tool used in estate planning as well.

For example:

Martin, who is a successful actor, creates a Will, in which all of his wealth and property will be given to his only child, Amelia, upon his death. In such a case, Martin’s death is a condition precedent to Amelia becoming rich, as the assets will only be transferred after Martin dies.

This tool can be used in a much more complex manner in estate planning, requiring that a certain event or life milestone be reached before something will happen, or assets transferred.

Example of Condition Precedent in Estate Planning

Phil and Barbara embark upon creating a plan to take care of their family in the event of their deaths. The couple, who own several real properties in three states, and who have substantial wealth, create a pour-over will, which automatically transfers everything they own into a family trust.

In the trust, the couple specify certain conditions precedent for each of their three children to inherit their wealth:

1. At the time each child reaches the age of 18, or graduates from high school, they will have access to a college fund totaling $25,000;
2. At the time each child reaches the age of 25, he or she will have access to an additional $25,000;
3. At the time each child gets married, he or she will receive $150,000 for use in buying a home;
4. At the time each child has a child – or reaches the age of 30, whichever comes first – he or she will receive the balance of their individual inheritance in the amount of $250,000.

The terms of a trust can be as simple or as complex as the individual creating it wishes. In this example of condition precedent, the couple can help ensure their money is used in the way they desire, or that their children are supported, while minimizing the chance that they will blow through the money while they are young.

Condition Subsequent

A condition subsequent is the opposite of a condition precedent, as it is a condition that, if it occurs, terminates the contract or agreement, or brings to an end a party’s duties.

For example:

John, who has just obtained his master’s degree in neurophysiology, enters into an agreement to work for his father’s research company until he accepts an employment offer from another company. This is a condition subsequent, as when John accepts an offer from a drug company, his obligation to his father’s company will end.

Condition Precedent Example in Dispute Resolution

Resource Services, LLC, and the Housing Authority of the City of Bridgeport (“BHA”), Connecticut entered into a construction contract in which Resource Services was to make improvements to a parking lot. Because there were errors in the project plans, Resource Services notified BHA that it would be necessary to issue a number of change orders, and that this would raise the total price tag for the project by more than 50%.

When the BHA failed to pay Resource Services the additional monies – which totaled more than $200,000 – the construction company filed a civil lawsuit. In the complaint, Resource Services claimed that BHA, as well as two of its directors, had breached their contract, breached their implied duty of good faith, committed negligence and various violations, fraudulently and negligently misrepresented terms of the project, and unjustly benefitted from the additional work done by Resources services, for which they were not paid.

The plaintiffs filed a motion to dismiss the case claiming that the court did not have jurisdiction over the case because Resource Services failed to comply with a condition precedent of the contract, which requires a certain procedure be followed in dispute resolution. Resource Services argued that the dispute resolution clause in the contract did not amount to a condition precedent.

After reviewing the happenings, the trial court granted the defendants’ motion to dismiss. In this example, condition precedent – or failure to comply with a condition precedent – led to the dismissal of a civil lawsuit.

Related Legal Terms and Issues

• Breach of Contract – A violation of contract through failure to perform, or through interference with the performance of the contractual obligations.
• Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
• Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
• Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
• Negligence – Failure to exercise a degree of care that would be taken by another reasonable person in the same circumstances.