Condition or Obligation?

If you’re not attuned to the nuances of categories of contract language, you may well overlook the distinction between conditions and obligations. That can lead to real unhappiness, given that the consequences of failing to satisfy a condition are very different from the consequences of breaching an obligation.

In that regard, here’s a provision that I spotted on the SEC’s EDGAR system:

Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days’ prior written notice to Lender and not including any disclaimer of the insurer’s liability for failure to give such a notice.

Condition or obligation? I have no idea. This provision uses will, which I recommend you use only in language of policy with respect to a contingent future event. To express it as an obligation, I’d say shall deliver. To express it as a condition, I could one of the three ways to express conditions. Here’s one: It is a condition to _________ that Grantor, at the request of Lender, delivers ___________. Here’s another: To ____________, the Grantor must, at the request of Lender, deliver ___________.

If it’s not clear whether something is a condition or an obligation, you can expect a court to hold that it’s an obligation.

For more on the distinction between conditions and obligations, see MSCD and this April 2007 post and this January 2007 post on AdamsDrafting. For a complete discussion of categories of contract language, see chapter 2 of MSCD.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

1 thought on “Condition or Obligation?”

  1. From the use of the labels Grantor and Lender, this provision looks like it came from a mortgage. If so, the lender almost certainly meant this provision to be an obligation.

    If I were representing the lender, I would have used “shall” but I would also have other provisions that coordinate with the insurance clause. (Perhaps the EDGAR document does, too.) Among them would be an option to to buy insurance for the Grantor’s account if the Grantor fails to deliver evidence of insurance when due. The events of default should include failure to deliver proof of insurance when due, with no right to notice and cure, or at most a very brief cure period that would give the Lender time to buy new insurance after the cure period expires and before the old policy expires. I would want to carve this obligation out of the typical catch-all event of default that allows X days after notice to cure failure to perform “any other obligation under this agreement (or mortgage or what have you)”. By the time that cure period expired, so would the insurance coverage.

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