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Parties to a contract may make their contract or one or several obligations arising under it dependent on the occurrence or non-occurrence of a future uncertain event. A provision to this effect is called a condition.

Conditions governed by the Principles include both those that determine whether a contract exists and those that determine obligations within a contract. Accordingly, application of the Principles may in some circumstances impose duties even in the absence of a contract (see, e.g., Articles 5.3.3 and 5.3.4).

A condition may refer to a range of events, including natural events or acts of a third person.

This Section only deals with conditions that originate in an agreement between the parties.

Conditions imposed by law are not covered by this Section unless they are incorporated into the contract by the parties. Thus, a public permission requirement imposed by law is outside the scope of this Section but may be governed by Article 6.1.14. However, if the parties introduce a provision making the contract, or their contractual obligations arising under it, dependent upon a public permission being granted, then that provision is a condition.

The word ‘condition’ may have a number of meanings. For instance, in some jurisdictions condition means a major term of the contract. That is not the sense in which the term ‘condition’ is used in this Section.

Some contracts may provide that the performance by one party is dependent upon the performance of the other party. These provisions are not conditions, they merely specify the obligations of both parties under their contract.

The parties may also fix a specific date at which the contract, or one or several of the obligations arising under it, is to take effect or is to come to an end. In many jurisdictions these provisions are referred to as ‘terms’. They are not conditions under this Section. The same holds true when the parties include a provision in their contract that makes the contract or one or several of the obligations arising under the contract dependent upon the occurrence of a future event that is bound to happen.

The parties may in their contract provide for a time by which the condition has to occur.

If the contract does not state a specific time by which the condition must occur, in appropriate circumstances the time may be implied on the basis of an interpretation of the intentions of the parties under Chapter 4.

A contract or contractual obligation can be made to depend upon the occurrence of a future uncertain event, so that it takes effect only if the event occurs. Under the Principles this is a suspensive condition. In some jurisdictions it is known as ‘condition precedent’.

A contract or a contractual obligation can be made to come to an end upon the occurrence of a future uncertain event. Under the Principles this is a resolutive condition. In some jurisdictions it is known as ‘condition subsequent’.

Instead of agreeing on a resolutive condition, the parties to a contract may agree that one or both of them may, under certain circumstances, have the right to terminate the contract.

Sometimes the contract or contractual obligation is made dependent upon an event which is entirely in the discretion of the obligor. In this case the question is of whether the obligor really wants to be bound. This is a question of interpretation. If it appears that there is no intention to be bound, there is no contract, nor is there any contractual obligation.

In some cases there is a conditional obligation in spite of the fact that one party has a choice whether or not to conclude the contract. This holds true when the freedom of choice is in actual fact dependent upon external factors.

Parties to complex and high-value business transactions that involve prolonged negotiations frequently provide for a so-called ‘closing’ procedure, i.e. the formal acknowledgement (‘closing’) at a certain point in time (‘closing date’) that on or before that date all the stipulated conditions (‘conditions precedent’) have been satisfied. Normally, but not necessarily, on the ‘closing date’ the parties will sign a document which confirms that no ‘condition precedent’ survives or, if some conditions have not been satisfied, that they have been waived.

Despite the terminology used by the parties, not all the events referred to as ‘conditions precedent’ are ‘conditions’ as defined by this Article. In actual practice, there are mixed provisions. Thus, for instance, events such as the receipt of all necessary antitrust clearances, the admittance to trading on a stock exchange, the granting of an export licence, and the obtaining of a bank loan, may be true suspensive conditions because they are events that are not certain to occur. Other terms such as the accuracy of one party's representations or warranties, the commitment to perform or abstain from some specific acts, and the submission of a tax certificate that evidences that no taxes are due by the party concerned, are in fact obligations that the parties have agreed to fulfil before the formal conclusion (‘completion’) of the transaction.

These are not events that are uncertain to occur and, therefore, these provisions are not conditions under the Principles.

Also, with respect to the effects of a ‘closing’, there is no clear-cut rule as to whether or not a term is a condition. In practice it is difficult to derive a logical answer from the clauses themselves. In particular, clauses named ‘conditions precedent’ often mix up real conditions and specific matters that still need to be agreed upon or real obligations that the parties must fulfil in the course of the negotiations (see Article 2.1.13).

In this Illustration, the contract consists of a mixture of legal obligations and suspensive conditions: item (c) is a suspensive condition, as it is outside the control of the parties; items (a) and (b) embody contractual obligations; and item (d) embodies a contractual obligation as regards the documents a party is under an obligation to procure but a suspensive condition as regards other documents.