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Alberta Law: What are conditions precedent in commercial agreements?

A condition precedent is a key part of many contracts. They are commonly used in real estate contracts and other commercial agreement. The law relating to conditions precedent is complicated, although thankfully the courts try to generally honour the intentions of the parties.

The Supreme Court of Canada looked at the issue of true conditions precedent in Turney v Zhilka, 1959 CanLII 12 (SCC), [1959] SCR 578 at 583‑84, 18 DLR (2d) 447:

The obligations under the contract, on both sides, depend upon a future uncertain event, the happening of which depends entirely on the will of a third party ‑ the Village council. This is a true condition precedent an external condition upon which the existence of the obligation depends. Until the event occurs there is no right to performance on either side. The parties have not promised that it will occur. In the absence of such a promise there can be no breach of contract until the event does occur.

True conditions precedent can cause problems, because neither party can waive the condition without agreement or an expressly reserving the power to reserve it.

The Alberta Court of Appeal considered this issue in the 2013 case of Swan Group Inc. v. Bishop, 2013 ABCA29. The court said at 19:

We turn, then, to what to infer about the clause, since it does not define itself as a true condition precedent and nothing else in the contract says so. We do not see in the law of real estate sales agreements a broad hospitality to the idea that default of a condition which relates to a step in an ongoing construction project should automatically void the agreement ab initio. Doing so deprives the parties of the certainty in their relationship, which is perhaps the single most important purpose of a contract. We were not pointed to a case making a clause like this a true condition precedent per se when it was not so designated by the parties in the agreement. The law should attempt to assist parties to carry out their original intentions and agreements, not to bust them.

Care must be taken in drafting conditions, although the courts seem to be practical in protecting parties' intentions.

If you require assistance in drafting a contract, please feel free to contact us.

The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.

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