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Conditions Precedent in Contracts: What you need to know.

 

A condition precedent is an extremely powerful thing in a contract.  Or, more appropriately, a condition precedent is an extremely powerful thing in a proposed contract.  A condition precedent, in most direct terms, is simply something that must be done before there even is a contract.  If the condition precedent in a contract is not satisfied, there never becomes a contract.

 

Here is Minnesota's statement of law on a party's contractual rights when the proposed contract includes a condition precedent:  “When a contract contains a condition precedent, a party to the contract does not acquire any rights under the contract unless the condition occurs.”Nat’l Union Fire Ins. v. Schwing Am., Inc., 446 N.W.2d 410, 412 (Minn. Ct. App. 1989).  Functionally, a contract that contains such a provision is more akin to a proposal than a contract.  This can save you or sabotage you, depending on which side of the contract fence you're sitting on.  Say for example you are a company in Lino Lakes buying from a company in Hugo.  Your contract to buy states something such as "So long as the pucks get shipped from Hugo to White Bear Lake, we'll pay $100,000.00."  In anticipation of the pucks getting shipped, you send the $100,000, but the pucks, although ready and boxed up, never get shipped to White Bear Lake.  In that case, the "so long as" clause was never satisfied, so you get your $100,000 back.

  

Strategic use of conditions precedent can be wildly beneficial for your business.  Take a look at your contracts and business plan to see if you have one, how it benefits you, or where such a clause might benefit you.  

 

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. All information contained in links are the property of the linked site.


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