Conditional
Subject to a condition; a conditional obligation or promise only becomes enforceable if and when the specified condition is satisfied.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Conditional?
A conditional term in a contract means that the obligation, right, or agreement only takes effect if a specified event or requirement is met. Until the condition is satisfied, neither party is bound to perform the conditioned obligation.
Conditional provisions appear throughout business contracts: conditional purchase agreements (subject to financing), conditional licenses (conditioned on regulatory approval), and conditional employment offers (subject to background check). The condition must be clearly identified along with its satisfaction criteria.
Under UCC §2-207, a purported acceptance that is "expressly made conditional on assent to the different or additional terms" is treated as a counter-offer rather than an acceptance - meaning no contract is formed until the original offeror agrees to the new terms.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
The Condition Must Be Clearly Stated
The contract must identify the condition with specificity - what must happen, by when, and who is responsible for satisfying it. Vague conditions (e.g., "subject to satisfactory review") create disputes.Satisfaction Standard
Courts distinguish between conditions requiring objective satisfaction (reasonable person standard) and subjective satisfaction (one party's personal approval). Subjective satisfaction clauses must be exercised in good faith.Who Bears the Risk of Failure
If neither party is responsible for the condition failing, the contract typically terminates without liability. If one party prevents satisfaction, courts may treat the condition as met.Conditional Acceptance Under UCC
In goods contracts, a conditional acceptance - one that accepts "but only if" - creates a counter-offer, not a binding contract. The original offeror must agree to the new terms before a contract exists.Real-World Example
A tech startup signs a conditional term sheet with an investor: "This investment is conditioned upon satisfactory completion of due diligence within 30 days and board approval by [date]."
No binding investment obligation exists until both conditions are met. If due diligence reveals problems or the board rejects the deal, the investor has no obligation to fund. The startup should not spend the money or make commitments based on a conditional term sheet.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Conditional Obligation ClauseWatch Out For
"Subject to" language may not create a condition
Courts sometimes read "subject to" as a covenant (promise to pursue) rather than a true condition. If you intend a condition, use explicit language: "conditioned upon," "provided that," or "this Agreement shall not become effective unless."Good faith obligation to satisfy conditions
Even when a condition is within one party's control, courts often imply a duty of good faith to pursue satisfaction. A party cannot deliberately prevent a condition from being met to avoid their own obligations.Conditional offers in employment
A conditional job offer (subject to background check, drug test, or reference check) does not create an employment contract until the conditions are satisfied. However, if an employer withdraws after conditions are met, they may be liable for promissory estoppel.Don't let conditional deadlines catch you off guard
Key dates tied to conditionals - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Specify the satisfaction deadline and procedure
Always state when and how a condition must be satisfied, who confirms satisfaction, and what notice is required. This removes ambiguity and protects you if the other party claims the condition was met when it was not.Include a termination right if conditions fail
Explicitly state that either party (or the benefited party) may terminate the agreement if conditions are not satisfied by a deadline. Without this, the contract may remain in an indefinite suspended state.Frequently Asked Questions
Can a party waive a condition that exists for their benefit?
Yes. A party may waive a condition that was inserted for their sole benefit without the other party's consent. For example, a buyer can waive the financing condition and proceed with cash. Waiver should be documented in writing.
What happens to a conditional contract if the condition never occurs?
If the condition is a condition precedent that never occurs, the conditioned obligation never arises and the contract typically terminates. Neither party is in breach - unless one party was obligated to work toward satisfying the condition and failed to do so.