Does a Condition Not Make Sense if the Party Subject to the Condition Can Ignore It?

Acme has an inventory of widgets. For whatever reason, the following is in a contract between Acme and WidgetCo:

It is a condition to Acme’s conducting a public sale of widgets that Acme notify WidgetCo in advance of the date and location of that sale.

Now compare that to the following:

To dispute a DynaCo invoice, XYZ must submit a Dispute Notice to DynaCo no later than five business days after XYZ receives that invoice.

Both of these sentences express conditions. They’re different in that the first sentence uses language of policy and the second uses language of obligation. But they’re also different in another way. Acme is in a position to conduct the public sale of widgets whether or not the condition has been satisfied. By contrast, the process of disputing a DynaCo invoice according the contract’s dispute mechanism can’t happen without DynaCo taking part.

That being the case, does it really make sense to state the first sentence as a condition? Should structuring something as a condition make sense only if the other party is in a position to act as gatekeeper?

Stated more generally, if a party that is subject to a condition is in a position to act as if the condition has been satisfied even if it in fact hasn’t been satisfied, should the issue in question instead be stated as an obligation? Here’s what the first sentence would look like stated as an obligation:

Before conducting a public sale of widgets, Acme shall notify WidgetCo in advance of the date and location of that sale.

Stating it as an obligation would make it clear what happens if Acme doesn’t notify WidgetCo. By contrast, if it’s stated as a condition and Acme doesn’t bother notifying WidgetCo, it’s not clear what the consequences are of ignoring a condition. Because the idea with conditions is that if you don’t satisfy a condition, whatever is subject to the condition doesn’t happen. You don’t also have a remedy if it the condition isn’t satisfied and whatever is subject to the condition happens anyway.

This is subtle “categories of contract language” stuff.

Posted in Categories of Contract Language | 5 Comments

  • Sterling

    It might be a little too early for me for subtle contract language, but although I see your point about the weak language and prefer it worded as an obligation, I don’t see how a court wouldn’t simply infer Acme to have an obligation to notify WidgetCo of a sale in advance.

    If a court looked at this and said, well hey this is just language of policy and there is no consequence of breach, then wouldn’t that require that the court decide the parties purposely inserted a term that had no use because consequences of breach are unclear? Correct me if I’m wrong (and I often am), but doesn’t a court have to assume that each provision has a purpose in a contract?

    In making that assumption, I think a court would then only be left with determining whether the provision was permissive or obligatory. If they did that here, then yes, the parties’ agreement in that clause contains an unknown assumption, but a court would have to decide what that assumption was in order to rule on that provision and I don’t see much risk in it deciding the assumption wasn’t an obligation. If the parties entered into a contract that explicitly states that X is conditional on a party doing Y, wouldn’t a court have to decide that Y must be performed before X can occur?

    • Chris Lemens

      Sterling:

      I think you are thinking like a sophisticated litigator. A sophisticated litigator would advise a client trying to wiggle out of the intended obligation that they will probably lose. And you are probably right about where the court comes out. But a less sophisticated business person may say “I didn’t agree that I would give the notice, and there’s no penalty for not fulfilling the condition.” And you never know when a court will be willing to find an ambiguity sufficient for a party to introduce evidence about course of negotiations (e.g., “the salesperson said it means what?!?!?!”), especially when the relevant court motion includes both the argument that the language is ambiguous and the extrinsic evidence that you propose to be the basis for your preferred interpretation. Ken’s commentary tends to focus creating sufficient clarity that you don’t ever have to figure out how the court would approach the issue, because he wants to keep us out of court entirely.

      Chris

  • AWrightBurkeMPhil

    It’s backwards to say that a provision “expresses a condition using language of (category).”

    The key thing is that a provision expresses a “conditional obligation” (or conditional prohibition, or conditional policy, or conditional grant of discretion, or conditional recommendation, etc.).

    Both examples in the post state unconditional policies.

    The first says that without advance notice, whatever happens does not constitute a sale.

    The second says that submitting a timely dispute notice constitutes disputing the invoice in question.

    (Paraphrase: “If you want *to dispute* an invoice, here’s how: submit a timely dispute notice. If you do that, you’ve disputed the invoice.”)

    Actually the second example is unclear, because it could also mean that if XYZ submits a timely dispute notice, DynaCo has a duty to do something. So understood, the provision is a conditional obligation.

    The third example changes the first example from an unconditional policy to an awkwardly phrased obligation.

    Whether the obligation is conditional or not is debatable; it may be an absolute obligation gussied up like a conditional one.

    Consider this revision of the third example:

    “Acme shall notify WidgetCo in advance of the date and location of any public sale of widgets that Acme conducts.”

    Is the obligation conditional or unconditional?

    Here’s another example of an identical obligation expressed with and without an “if”:

    (1) “If any of the houses have north-facing exterior walls, the builder shall use mildewcide paint on those walls.”

    (2) “The builder shall use mildewcide paint on all north-facing walls.”

    Either the first is a pseudo-conditional statement of obligation or the second is a pseudo-unconditional statement of obligation.

    Which matters more, form or substance?

    The subtle stuff is the fun stuff.

    • Chris Lemens

      AWB:

      I think you point about needing to trace the condition back to the thing it conditions is really important.

      In the first example, one could realistically question whether it should be a condition to an obligation (or simply the specification of the obligation, as you point out above) or a condition to a prohibition. Which of the following would be the intended meaning?

      1. DynaCo shall not sell widgets to the public without giving WidgetCo notice.

      2. DynaCo shall give notice to WidgetCo before selling widgets to the public.

      In the first, a court would more easily enjoin the sale. As a drafter, I think that I would more readily recognize that I need to address remedies explicitly if I phrased it clearly as conditional language of prohibition or a flat obligation than I would with the convoluted original language. But that might not be true for everyone.

      Chris

  • Westmorlandia

    I think that the first part should certainly be drafted as an obligation. This could be done in one of two ways – either as a positive obligation to notify WidgetCo before conducting a public sale (as suggested in the post) or as a prohibition on conducting a public sale without giving notice:
    “Acme shall not conduct a public sale of widgets unless it has notified WidgetCo in advance of the date and place of the sale.”
    I think I prefer it this way round, because it identifies the core breach as the holding of the sale, with the notice being a conditional element, which I think is more intuitive.
    What this also highlights is that the “unless” does apply a kind of conditionality to the prohibition itself – the prohibition being conditional on no notice having been given. (Or, which is the same thing, being permitted to hold a public sale is conditional upon notice having been given.) There is, therefore, a condition contained in the provision, which is perhaps how the first version of the wording came about – but it makes an error by expressing the condition as a condition to the sale itself, when it fact it is a condition to being permitted to conduct the sale, and I think that is why it doesn’t quite work.
    Just to note – the original wording could make sense if “public sale of widgets” was some kind of concept peculiar to the contract which has certain consequences, so that any sale would only constitute a “public sale of widgets” for the purpose of the contract if notice had been given. (It would be just an ordinary sale otherwise.) But I doubt that was intended, as it would probably then be a defined term.