Conditional Contracts

Contracts regularly use terms such as "subject to" an event or condition. What precisely clauses of this nature means will depend on what the parties intended. At its most basic level the subject to clause could either be a condition precedent to the formation of a contract or in respect of the performance of the obligations.

A leading authority on the topic of conditional/contingent contracts suggests that a "subject to contract" clause can mean one of three things: –

  1. all the terms of the contract are arranged and there is a binding agreement but the parties just want to set out the arrangement more fully and precisely;
  2. the parties have agreed to all of the terms but performance is conditional upon execution of a formal contract;
  3. there is no concluded bargain unless a formal contractual document is entered into.

Potential Scenarios - Conditional / Contingent Contracts

  • You go to a car dealership, strike a deal regarding a vehicle that takes your liking and tell the dealer that it is "subject to contract";
  • The other party to your contract told you the arrangement was "subject to contract" yet they are not doing anything about it raising questions about your rights;
  • In a contract for the sale of land there was a "subject to finance" clause but finance was not available;
  • You put down a deposit for a house and tell the vendor "this Contract is entered into subject to Purchasers completing a sale of their property at No. 1 Old House Road"

Important Quotes in Conditional Contracts Cases

Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion. - Perri v Coolangatta Investments Pty Ltd [1982] HCA 29

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  • understand the presumptions that operate in this context in relation to contracts for the sale of land and other types of contract;
  • the time period within which the condition precedent must be satisfied;
  • whether there are any implied obligations for the party who has the benefit of the condition precedent;
  • how to go about terminating such an arrangement (if possible);
  • determine whether you will be entitled to any damages or not should the condition not be fulfilled

* This content does not purport to give legal advice. Readers must obtain their own legal advice, that applies to the particular circumstances of their case, before taking any action at all.