Purchase and sale contracts are usually written in Real Estate using ‘subject to’ clauses, that is, conditions that must take place before the purchase is finalized. Preceding conditions are the opposite of post conditions, which are conditions that must continue to exist for something else to continue. Since the contract is the instrument that expresses the common intention of the parties to be legally bound by their respective obligations, it is a requirement that the contracts be drafted in clear and unequivocal terms. If the parties have not expressed these obligations clearly enough, there is no contract because the necessary common intention to be bound by certain obligations does not yet exist. It is a legal requirement, therefore, that all the terms and conditions of the contract are sufficiently clear, since the law does not impose arrangements whose essential terms or conditions are uncertain.
The ideal ‘subject to’ clause is one whose criteria are so clear that it is completely obvious whether the criteria for satisfying that clause are met. In determining the certainty of a ‘subject to’ clause, courts often consider whether the criteria for satisfying such a ‘subject to’ clause are subjective gold target. A subjective criterion is one that depends on the personal vision of the individual who decides it. Instead, an objective criterion is one that depends on an external event. Thus, the more subjective the wording of a ‘subject to’ clause, the more likely a court will find the clause to be untrue. To be quite technical, moreover, in addition to being subjective and objective, the courts have recognized that suspensive conditions may also be partly subjective and partly objective, and that different results occur depending on the circumstances.
Each case of ‘precondition’ must be considered on its own facts. Some conditions precedent are so imprecise or depend so completely on the subjective state of mind of the Buyer, that the contracting process must still be considered at the offer stage. An example of a subjective ‘subject to’ clause would be: “This Agreement is subject to the approval of Buyer’s parents.” This means that if a condition precedent is entirely subjective (sometimes referred to as a ‘whim and fancy’ clause), the courts may treat the legal settlement as nothing more than an offer from the Seller which the Buyer can accept by removing the ‘subject to’ clause. In other words, even though there was an initial offer followed by an acceptance, and even though the instrument is called a Contract of Sale, the arrangement in law is nothing more than an offer until the ‘subject to’ clause is declared removed (for The buyer).
On the contrary, when the suspensive condition is clear, precise and objective, the contract is consummated. None of the parties can withdraw, but the execution remains in abeyance until the parties know if the suspensive objective condition is met. An example would be “Subject to Buyer obtaining satisfactory financing” on a certain date. If a ‘subject to’ clause is objective, a contract becomes effective as soon as the offer is accepted. The obligation to fulfill the contract until its termination is suspended until the previous condition is removed.
But, as stated before, there is a third class of precedent conditions. In this class fall the types of conditions that are partly subjective and partly objective. An example would be: “Subject to Planning Department approval of the attached subdivision plan.” This clause seems objective but, in fact, it differs from a previous truly objective condition in that someone has to request approval from the Planning Department. Some persuasion from the Planning Department may be required. Can the Buyer prevent the condition from being met by either refusing to file or convincing the Planning Department not to approve the subdivision plan? Clearly, the Buyer must take two steps to fulfill his obligation in this regard: the first step is to submit the subdivision plan to the Planning Department, and the second is to use his best efforts to ensure that the Planning Department approve.
The law in relation to implied terms in a contract is no different in relation to conditions precedent than it is for other contract terms. Contracts must not be allowed to fail because of an omission which the parties would have immediately corrected if they had noticed the omission at the time the contract was concluded. Courts have at their disposal the ‘effectiveness test’ and the ‘informal spectator test’ to guide them in evaluating contracts. In the example above, the effectiveness test would require someone to submit the subdivision plan to the Planning Department, and the bystander test would be met if both parties answered the hypothetical question of who would submit the plan, obviously the Buyer. In essence, when a condition precedent is part subjective and part objective, the court must determine whether its characteristics are objective enough to constitute a contract. If, on the other hand, the clause is predominantly subjective, then the agreement will amount to nothing more than an offer, which the Buyer can accept by removing the ‘subject to’ clause.
