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Wk 9: Special Condition Pt 1 - Coggle Diagram
Wk 9: Special Condition Pt 1
Classification
General Principles
A general principle will either SUSPEND
Formation of the contract (condition precedent to formation); OR
Performance of the contract (condition subsequent)
Most conditions make the contract subject to:
Finance
Local government approval
Content of a lessor to assignment
These DO NOT prevent formation of a contract
They are usually CONDITIONS SUBSEQUENT, making performance conditional on fulfilment of the condition
HOWEVER, where an agreement is stated to be 'subject to contract' there may be NO BINDING ARRANGEMENT until the condition is fulfilled
Effects of a Special Condition
Conditions Precendent
Unless and until the event occurs, there is NO CONTRACT AT ALL
May relate to the whole or part of the contract
Not usually within the power of the parties to cause the event to happen
A special condition providing that formation of contract is subject to the happening of an event will usually be a CONDITION PRECEDENT
Inserted for the benefit of BOTH parties
The condition CANNOT be waived by either - essentially there are no legally binding rights to enforce or waive unless the event happens
If unfulfilled, deposit will have to be returned
If no date for performance, usually latest daye is settlement
Condition Subsequent
Where a condition makes PERFORMANCE subject to the happening of an event, this will be a CONDITION SUBSEQUENT
Again, may relate to WHOLE or PART of the contract
Contract rights ARE in existence
But they are VOIDABLE at the the option of the party not rtesponsible for non-fulfillment of the condition
Alternatively the may be WAIVED
If no time stated, latest is settlement or a 'reasonable time'
If by settlement the buyer does not rely on non-fulfilment to determine the contract they will be bound to perform
Subject to Formal Contract
Masters v Cameron
Parties reached final agreement, intend to be IMMEDIATELY BOUND TO PERFORM the terms, but want them restated in formal contract (not common)
Parties reached final agreement, but make PERFORMANCE OF A TERM(S) CONDITIONAL ON EXECUTION of a formal contract
Parties intend NO FORMAL CONCLUDED AGREEMENT UNLESS AND UNTIL EXECUTION of a formal contract (eg where buyer wants a further investigation of property)
Parties have reached final agreement, intend to be bound immediately by the terms, but expect to make a further contract in substitution for the first containing by consent additional terms (if these are agreed, they will be added to the formal agreement)(Heads of Agreement)
Francis v NSW Egg Producers Co-Op P/L
What did the parties intend? A concluded bargain or not?
Subject to contract = prima facie mean no binding contract is concluded, terms are intended to serve as a basis for future contract
There is no special formulation of words
Parol evidence may be required, incl subsequent conduct of the parties
Subjective intent is not controlling -> their intent as expressed in language
Objective construction (And nature, subject matter, complexity of the contract, any urgent need to perform) --> although subjective intent can be taken into account
If significant terms are yet to be agreed --> normally no concluded bargain
Construction
Satisfactory to Buyer
Often in finance clauses cl 3 REIQ
Not uncertain:
Meehan v Jones
What are the buyers obligations?
Buyer has to act honestly (subjective test)(implied term)
Buyer has to take
reasonable steps
(implied term)
Uncertain whether buyer has to act reasonably in deciding whether satisfactory
Essentially an 'option' to purchase
Contract not illusory though
A concluded agreement on terms was reached
Once the condition was fulfilled there was no discretion to perform or not
Approval or Consent
Since
Meehan v Jones
, unlikely to be uncertain
In finance terms -
subject to finance APPROVAL is different to
Subject to OBTAININ finance (actually have the money available)
Where approvals required from a 3rd party eg local government
Be careful when drafting to ensure adequate protection for the buyer
Approval subject to conditions -
Richard West & Partners v Dick
Avoidance
General principles
The party for whose BENEFIT the condition was inserted will have the right to avoid for non-fulfilment (except if expressly provided otherwise)
If the condition benefits BOTH, either may avoid - w/o agreement of the other
If date for fulfilment of condition is before settlement, EITHER may avoid the contract after the date for fulfilment if unfulfilled
A party who CAUSED FAILURE of the s/cond CANNOT avoid the contract (party can't rely on their own default)
Comply will all express requirements eg notice!)
Express consequences set out in the s/cond
If a clause gives ONE party the right to avoid the contract this will govern
If that party chooses to complete the other party can't treat it as at an end
If the right is vested in BOTH
Either may terminate without the agreement of the other
(Waiver)
No consequences provided
If time for fulfilment not provided
Will be a reasonable time
Max = date of settlement
Party whose benefit the clause was inserted can WAIVE or AVOID
Benefit to terminate
Usually only the party who benefits from the clause can avoid for non-fulfilment
BUT if the date for fulfilment is BEFORE settlement, and it passes, EITHER party may terminate
Regardless of which party the cond originally benefited, once date for fulfilment PASSES, the s/cond benefits BOTH - eg necessary for seller to be able to avoid, to resolve uncertainty
If the time for fulfilment expires on settlement, ONLY the party who benefits from the cond will be able to WAIVE or AVOID
Examples
Subject to sale of another property
Subject to registration of plan of subdiv, dev approval
Subject to finance
Subject to building and pest
Subject to FIRB approval
Waiver
Relevance of benefit
Right to waive depends on whether the cond was inserted for that party's benefit
If cond benefits BOTH, waiver requires CONSENT of both
In QLD, for ONE party to have EXCLUSIVE right to waive, that party must have EXCLUSIVE or at least primary benefit of the condition
If the contract states who the condition benefits this will govern:
Measey v Evans
When?
BEFORE or ON the date for fulfilment
AFTER? other party has right to terminate
What happened if not waived in time? Can still waive?
If DATE specified - termination AFTER is probably ineffective, esp if time is of essence
If clause expressly allows wiaver AFTER this will govern
If clause SILENT - likely that UNILATERAL right to waive LOST after date for fulfilment
Condition changes character to benefit BOTH so can only be waived by both with consent
George v Sullivan
Conflicting authority:
Measey v Evans
Obligations
Best Endeavours
Best Endeavours/reasonable endeavours/reasonable steps
Parties have promised not to prevent the condition being fulfilled
One party may have promised to use best/reasonable endeavours to ensure it DOES materialise
Failure = breach and will disentitle the party to rely on the condition to cancel the contract
IBM United Kingdom Ltd v Rockware Glass Ltd
RS/BE = take all those steps capable of achieving the result a 'prudent, determined and reasonable owner acting in his own interest and desiring to achieve the result would take'
Standard is reasonableness, no need to go beyond the bounds of reason
Zieme v Gregory
- subject finance, only 1 institution approached (breach)
Onus of proof usually on person attempting to rely on the s/condition
Time
Most s/condition will contain a time stipulation
If a date - must be fulfilled by the date (strict adherence)
If no date - within reasonable time
What if time is set by reference to the date of contract?
Date inserted is usually date of last person to sign (seller)
BUT this may not be the actual date of contract formation (communication to other party)
JLF Corporation P/L v Mount Petrie Developments P/L
Retek P/L v First Edition Properties P/L
Date will likely be specified in the contract, not the actual formation