Appendix A: Serjeant Williams' Rules on Conditions in Con

tracts

95

Appendix B: Langdell's Rules on Conditions in Contracts........ 99

PART I

CONDITIONS IN CONTRACTS

A

INTRODUCTION

PRELIMINARY DISTINCTION BETWEEN CONDITIONS RELATING TO THE EXISTENCE OF CONTRACTS AND CONDITIONS RELATING TO PERFORMANCE UNDER ADMITTEDLY EXISTING CONTRACTS.

Contracts are choses in action, which means that they come into existence as property of a somewhat transient and peculiar nature. The very existence of a contract may be made by the parties to depend upon a contingency, i.e., the happening of the contingency may be necessary before there can be any contract, or, on the other hand, the happening of the contingency may be made to terminate the whole of a previously made contract. With such conditions this article has very little to do, for it is concerned primarily with the performance of contracts which actually exist, and which continue to exist until full performance is had or a breach of performance takes place and the cause of action which thereupon arises is merged or discharged, and, therefore, deals principally with conditions which go to performance under existing contracts. But perhaps it will conduce to clearness of understanding of the problems connected with those conditions which go to performance under existing contracts if, preliminary to the statement of the rules applicable to such conditions, and preliminary even to the definition of terms, a word is said about conditions which go to the existence of contracts.

Conditions going to the existence of contracts may be either those imposed by law or those prescribed by the parties. As instances of conditions which the law imposes and which must be complied with before a simple contract comes into being may be noted the necessity of offer and acceptance and of consideration.

In the case of conditions prescribed by the parties, it may be a difficult thing to determine whether the happening of the fact or the event made a condition is to precede the existence of the contract or whether the contract is to exist at once and the happening of the fact

or event is to cut its existence short.1 Indeed, except for certain practical consequences under the law of pleading and the law of evidence, the question of whether the condition is precedent or subsequent seems, as a contract question, of little importance-largely, perhaps, because there are very few conditions subsequent-though if the contract is one involving the title to property, it may be, as a property question, of very considerable importance. Attention is invited to the following statement of the matter in Williston on Sales:

"A contract to sell may in terms at least be subject to a condition subsequent, but the legal effect of such a condition is generally that of a condition precedent. Thus, if A agrees to sell B goods on January 1st, subject to a proviso that if war is declared before that date the contract shall be thereby terminated, the contract is by its terms to exist until and unless something happens, which will thereupon terminate the contract. But the legal effect of this bargain is not altered for any purpose except pleading and the burden of proof if it be put with a condition precedent as follows: A agrees to sell and B to buy goods on January 1st if war has not been previously declared. Other conditions subsequent in form in contracts may similarly be restated in the form of conditions precedent. This results from the fact that there can rarely be any material difference between the termination or divesting of a contract by a condition subsequent on the one hand and the impossibility of liability arising on the contract because a condition precedent has not happened and cannot happen on the other. It is only where a transfer of property, whether real or personal, has been made that conditions subsequent become important." 2

But for purposes of pleading and of proof it may be important to determine the nature of the condition. For instance, in speaking of the rule adopted in a number of jurisdictions that the offeror of a unilateral contract of guaranty must be notified within a reasonable time by the guarantee that the act relied on as an acceptance has been given or recovery cannot be had against him, Professor Harriman

says:

"The contract is complete when the consideration is furnished, that is, when the guarantee makes advances, but failure on the part of the guarantee to take reasonable steps to notify the guarantor of such

1 For a discussion of a common kind of condition precedent to the existence of a contract, see a note on conditional execution of contract under parol agreement that it shall not take effect until others have signed it, in 45 L. R. A. 321. See also Massachusetts Biographical Soc. v. Howard (1920) 234 Mass. 483.

21 Williston on Sales (2d ed) § 8.

advances within a reasonable time will discharge the guarantor. Failure to give notice is therefore a condition subsequent, putting an end to the contract; yet the anomalous rule has been laid down by the highest authority that the guarantee is bound to prove that he has given notice. Logically, of course, it should be for the guarantor to show that he has received no notice, and is therefore discharged from the obligation which comes into existence as soon as the advances are made by the guarantee."

In the foregoing passage, the condition subsequent which Professor Harriman is talking about is not strictly a condition relating to performance under the contract, but instead is a condition either precedent to the existence of the contract or terminating its existence before a default on the part of anybody has taken place under it. Whether the notice is precedent to the existence of the contract-that is, whether the offer of contract, treated as one of unilateral contract, calls for acceptance by two acts and so can be accepted in no other way than by making the advance asked and by also giving notice in the way required by the rule-or whether the contract is completed by the doing of the act of making the advance requested and, therefore, the failure to give the notice cuts short the contract's existence, is a question of some theoretical difficulty. While the writer agrees with Professor Harriman's construction of the condition as one relating to the termination of a unilateral contract which comes into existence by the making of an advance in reliance on the offer there are bilateral contracts of guaranty but they are not being considered here it would seem to be arguable that it is equally logical to regard the giving of the notice in the way required as an essential part of the acceptance, i.e., to regard the making of an advance in reliance on the offer and the giving of the proper notice as both prerequisite to the existence of a contract. If the latter view is taken, then, of course the guarantee must prove that he gave the proper notice, or he cannot recover, since unless he gave the notice there was no contract. If, however, as seems the better view, both because it is more logical and because, as Professor Langdell pointed out, it is more just, the giving of notice is not a condition precedent to the existence

5

3 Citing Douglass v. Reynolds (1833) 7 Pet. (U. S.) 113.

4 Harriman on Contracts (2d ed.) § 149.

5 "Sometimes the consideration for a promise is of such a nature that the promisor will have no sure means of knowing whether or not it has been performed, unless he is informed by the promisee; and this will frequently be a sufficient reason for holding the offer to contain an implied condition that notice shall be given of the performance of the consideration within a reasonable time after it is performed. Such a condition, however, will not suspend or postpone the making of the promise until the notice is given; for that is not

of the contract, but, instead, the failure to give the proper notice puts an end to the contract which arose when the advance was made in reliance on the offer, the condition of course is subsequent. If the latter view is taken, it may be proper to put on the guarantor the burden of showing that he received no notice, and possibly even that none was sent, though the failure to receive notice should make out a prima facie case that none was sent.7

Conditions going to the existence of the contract are sometimes called "external conditions," and thus are contrasted with those conditions which are in the contract, or are read into it by the court, and which are therefore called "internal conditions."

necessary for the protection of the offerer, and it would work an injustice to the offeree. The promise, therefore, will arise (and the offerer's power to revoke will cease) the moment that the consideration is performed, but the liability of the promisor will depend upon his receiving notice pursuant to the implied terms of the offer. In other words, the condition contained in the offer will be imported into the promise. Thus if A offers B to become guarantor for C to a certain amount, if B will give C credit to that amount, A will become guarantor as soon as the credit is given, but his guaranty may reasonably be held to be conditional upon his receiving notice within a reasonable time afterwards that the credit has been given." Langdell's Summary of Contracts, §6.

See 1 Williston on Contracts, §§69, 69a. Cf. Corbin's Cases on Contracts, 76, n. On the question of logic, it has been said:

"That the performance of the act requested by the guarantor completes the contract and that notice if necessary at all is necessary only as a condition subsequent, is shown by the fact that if notice is not given within a reasonable time, the guarantor may waive his defense and incur liability by a subsequent promise to pay, or the necessity of notice may be waived in the offer. If an element necessary for the formation of a contract had been omitted, this result could not be reached. No subsequent gratuitous promise can vitalize an agreement which never became a contract. Jurisdictions which require notice of the acceptance of a guaranty generally hold that such notice must be given in the case of a continuing guaranty within a reasonable time after the close of all transactions under the guaranty. If an acceptance analogous to that in bilateral contracts were required, the proper time for it would be at the outset of the transactions under the guaranty, not at their close.

"Again an exception to the rule discharging the guarantor for lack of notice is made when it appears that the guarantor has not been injured by the delay in giving notice. If notice were in truth a requisite for the formation of the contract, the fact that the lack of notice caused no injury would be immaterial." 1 Williston on Contracts, § 69a.

In note 19 to that § 69a, it is said: "Conditions subsequent to the existence of a contract may also exist in bilateral contracts, e.g., the approval of a court when necessary to confirm a judicial sale, or of the Secretary of the Interior when necessary to confirm a contract with Indians. Crosbie v. Brewer (Okla. 1916) 158 Pac. 388." That is because in such cases a contract is deemed to come into existence which is to cease only if there is disapproval.

That sending notice may be enough even though the notice never reaches the guarantor, see Bishop v. Eaton (1894)161 Mass. 496, Costigan's Cases on Contracts, 171. That notice need not even be sent if the guarantor acquires knowledge otherwise and in sufficient time that the advance has been made, see Lynn Safe Deposit and Trust Co. v. Andrews (1902) 180 Mass. 527.

8 Harriman on Contracts (2d ed.) §§ 300, 304. For reasons stated in note 23, post, Professor Harriman regards conditions implied by law as implied on the theory that the parties intended them, and this idea colors his definitions of