Contracts oftentimes contain conditions precedent to payment or another affirmative obligation. The condition precedent needs to occur to trigger a party’s obligation to perform. If the condition precedent does not occur, then the obligation to perform is never triggered.
Contracting parties need to understand and appreciate conditions precedent to perform in their contract. This ensures that they perform a condition precedent to trigger another party’s obligation to perform or they know that their obligation to perform is not triggered until the opposing party performs a condition precedent.
The recent ruling in University Housing by Dayco Corp. v. Foch, 42 Fla. L. Weekly D1122a (Fla. 3d DCA 2017) exemplifies the importance of understanding conditions precedent to an affirmative contractual obligation. In this case, parties entered into an agreement where party “A” was required to form a new development company and obtain financing to build a student housing complex. Party “B”, when the financing (loan) was in place, was to transfer certain property to the newly formed development company. Party A forming the new development company and obtaining financing was a condition precedent to Party B transferring certain real property to the new development company.
Party A did not obtain the financing. And, naturally, Party B did not transfer property to the new development company contending that the procurement of financing was a condition precedent to its obligation to transfer property. The Third District, affirming the trial court, agreed with Party B that Party B’s obligation to transfer property to the development company was never triggered because Party A did not comply with a contractual condition precedent. As the court summed up a condition precedent:
Under well established contract law, a condition precedent is a condition which calls for the performance of an act after a contract is entered into, upon the performance or happening of which its obligation to perform is made to depend…. Conditions precedent to an obligation to perform are those acts or events, which occur subsequently to the making of a contract, that must occur before there is a right to immediate performance and before there is a breach of contractual duty.
University of Housing by Dayco Corp., supra (internal quotations and citations omitted).
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