Condition subsequent: Overview, definition and example
What is a condition subsequent?
A condition subsequent is an event or action that, if it occurs after the formation of a contract, can terminate the contract or modify its obligations. In other words, the contract remains in effect unless a specific event takes place, at which point the obligations might be discharged or changed.
Why is a condition subsequent important?
A condition subsequent is important because it helps define situations in which a contract can be ended or altered after it has been agreed upon. This gives parties the flexibility to adapt the terms of the agreement based on specific future events or circumstances. It ensures that the contract remains relevant and enforceable until a particular event occurs that may trigger its termination or modification.
Understanding a condition subsequent through an example
Imagine a company signs a contract with a supplier for the delivery of materials. The contract includes a condition subsequent stating that if the company’s sales drop below a certain level within six months, the company can cancel the contract without penalty. In this case, the company’s ability to terminate the agreement depends on meeting the specific condition (a drop in sales) after the contract is signed.
Example of a condition subsequent clause
Here’s how a condition subsequent clause might look in a contract:
“This Agreement shall remain in effect until the occurrence of a material adverse change in the market conditions, at which point either party may terminate the Agreement by providing written notice to the other party.”
Conclusion
A condition subsequent allows a contract to be adjusted or terminated if a specific event occurs after the agreement has been formed. It offers flexibility for businesses, helping them to manage risks and adjust to unforeseen changes. Understanding conditions subsequent can help businesses plan for potential changes in their agreements and avoid unexpected legal obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.