Condition and Time Term

From Max-EuP 2012

by Thomas Finkenauer

1. Subject, purpose and terminology

A condition (condicio) is a contractual provision, which renders the legal effects of a transaction dependent on the occurrence of a future, uncertain event. Distinct from a condition, a time term (dies) causes the legal effects to be dependent on a future certain event. According to traditional terminology, a provision constitutes a condition if it is uncertain whether the event will occur and if the time at which that event is said to occur is either certain or uncertain: dies incertus an certus quando (to live up to a given birthday) or dies incertus an et quando (to pass an exam). In contrast, a time term exists if the event will certainly occur and the time of occurrence is either certain or uncertain: dies certus an et quando (15 January of a year to come) or dies certus an incertus quando (day of death of a person). This distinction between the two terms is determined by interpretation: the death of a person is a certain event and therefore a time term; nevertheless, it represents a condition if the parties implicitly regard the survival of another person, eg the beneficiary, as relevant. The differentiation between condition and time term is of a rather theoretical nature as both are subject to the same rules. A condition or time term can be suspensive or resolutive. In the former case the obligation only becomes effective when the event occurs; in the latter it then becomes ineffective.

While condicio tacita signifies a tacit, or implied, condition, neither the condition in law (condicio iuris) nor the so-called condicio in praesens vel in praeteritum collata are conditions in the legal sense: the former because it renders the transaction dependent only on the fulfilment of statutory requirements, the latter because the occurrence or non-occurrence of the event nominated by the parties is not uncertain, rather it is merely unknown to them.

Finally, a differentiation must be made—though the terminology sometimes varies—between the (valid) potestative condition and the discretionary condition, which is usually considered invalid. The former renders the effects of a transaction dependent on a specific action by one of the parties, which is itself independent of the legal transaction. The best-known example for this type of condition is the payment of the last instalment in a case of retention of title (security rights in movable assets). The discretionary condition, on the other hand, simply revolves around a subsequent declaration by one of the parties expressing his desire for the contract negotiated to be effective; in this case, at the time of the formation of contract (contract (formation)) there is a lack of commitment to be bound by the contract.

Both condition and time terms serve to further the adjustment of the effects of a legal transaction to the recognized risks of future developments. Thus parties achieve greater flexibility in shaping their contractual relations. Hence, the condition is an important instrument of the doctrine of private autonomy; restrictions are only permissible in view of overriding considerations of public order or commerce.

2. Legal history

Conditions are correctly regarded as one of the great inventions of Roman law. The Roman law of conditions was a skilfully developed branch of law to which subsequent legal systems could add only little. Both condition and time term were essentially subject to the same rules. Notably sale on approval (pactum displicentiae), limited reservation of a better bid (in diem addictio) and rescission of a sale when the purchase price was not paid in time (lex commissiora) were created. The state of pendency before it can be established whether the condition will be fulfilled or not gives rise to difficult legal problems which were, as a rule, solved satisfactorily. Hence, fulfilment of the condition was deemed to have occurred if the party benefiting from non-fulfilment had prevented its fulfilment (presumption of fulfilment); in the converse case, non-fulfilment was deemed to have occurred (presumption of non-fulfilment). Already according to the Twelve Tables of 450 BC, a slave released conditionally in a testament (wills) could obtain his freedom by paying a defined sum of money out of his separate assets, even if the heir had, in the meantime, transferred him to a third person. Such decisions recognized the reification of the legal position of the person who had a conditional right.

The medieval commentator Bartolus developed for the first time in the 14th century a general (and subsequently prevailing) doctrine of retroactivity according to which all relevant effects of a transaction at the time of occurrence of the condition are to be referred back to the moment of conclusion of the contract (in respect of interim dispositions, benefits, bearing of risk etc). Gottfried Wilhelm Leibniz, in contrast, denied this (fictitious) retroactivity. He proposed that a conditional claim and conditional title are generated immediately at the time of the conclusion of contract, though admittedly tainted with uncertainty on the part of the parties whether the condition will be fulfilled. Thus Leibniz became, in particular due to the rediscovery of his works by Hermann Fitting in the 19th century, the vanguard of a modern doctrine of condition. Of the codifications of natural law, only the French Code civil clearly opted for the notion of retroactivity (Art 1179). The pandectist literature (Pandektensystem) provides an unusually broad scope to theories concerning impossible, immoral, paradoxical etc conditions and especially to the question of retroactivity. Although the doctrine of retroactivity remained prevalent, there were initially prominent objectors to it in the shape of Bernhard Windscheid, then Hermann Fitting, Rudolf von Jhering and finally Ernst Zitelmann who caused a large part of the legal literature to depart from the dogma of retroactivity. Conversely, the preliminary effects of conditional transactions were now emphasized. This can be seen in particular in §§ 160 f of the Bürgerliches Gesetzbuch (BGB): Interim dispositions are to be considered ineffective because the object is already predestined to become the property of another person; that person has an independent and transferable inchoate title to the object (Anwartschaftsrecht).

Since the Middle Ages the doctrine of condicio tacita, that can be traced back to classical Roman law, was capable of achieving a conditional link between performance and counter-performance by being read into the contractual agreement. Also, every contract could be taken as containing a tacit condition that the circumstances remain unchanged (clausula rebus sic stantibus). This doctrine lost favour on account of the modern will theory, and its revival by Windscheid’s doctrine of presupposition (Voraussetzung) was not crowned with success either. However, Windscheid’s doctrine continues to have an effect in Germany in § 812(1)(2) 2nd alternative and § 313 of the BGB (Wegfall der Geschäftsgrundlage/ change of circumstances).

3. Regulatory structures and tendencies of legal development

All European legal systems in the tradition of the Roman ius commune contain provisions concerning suspensive and resolutive conditions as future uncertain events (Art 1168 French Code civil, § 158 Bürgerliches Gesetzbuch (BGB), Arts 201 f Greek Civil Code, § 696 Austrian Allgemeines Bürgerliches Gesetzbuch (ABGB), Art 1353 Italian Codice civile). According to Art 1181(1) Code civil as well as Art 1113 Spanish Código civil a condition may also refer to a past event still unknown to the parties. In England and Ireland, one more commonly refers to a condition precedent rather than suspensive condition and to a condition subsequent rather than resolutive condition.

The rules on fictitious fulfilment and non-fulfilment are also part of the common European acquis. According to these a condition is deemed to be satisfied if fulfilment was prevented, contrary to good faith, by the party to whose detriment fulfilment would have operated; conversely, a condition is deemed not to be satisfied if fulfilment was brought about, contrary to good faith, by the party to whose advantage it would have operated. The purpose of this rule is to prevent interference contrary to good faith with the natural course of events by one party in the sense of a corriger la fortune (good faith). Whereas, for example, § 162 BGB and Art 207 Greek Civil Code recognize both rules, Art 1178 Code civil, Art 156 Swiss Code of Obligations (OR), Art 1119 Código civil, and Art 1359 Codice civile know only the deeming provision in case of fulfilment, but the case law in both countries evidently also acknowledges the rule concerning fictitious non-fulfilment. In Austria and Scotland acknowledgement of both rules is based on case law. The French draft Law of Obligations of 2005 (Avant-Projet de réforme du droit des obligations et du droit de la prescription) now refers also to fictitious non-fulfilment. In England and Ireland conduct contrary to good faith is considered to be a breach of a tacit contractual provision.

In accordance with the more recent ius commune doctrine, most European legal systems have abolished the doctrine of retroactivity which is prevalent in Romanistic legal systems. Although the doctrine of retroactivity was adopted in France (Art 1179 Code civil), Spain (Art 1120 Código civil), and Italy (Art 1360 Codice civile), important exceptions are made, eg concerning contrary agreements relating to the transfer of risk (risk, transfer of) (Art 1182(2) Code civil) or for long-term contracts (Art 1360(2) Italian Codice civile). In contrast, Germany (§ 159 BGB), Switzerland (Arts 151(2), 154(2) OR), Greece (Arts 203, 204, 206 Civil Code), the Netherlands (Art 3:38(2) Burgerlijk Wetboek (BW)), and the Austrian doctrine decided against retroactivity; however, parties are entitled to enter into a contrary agreement. In England, Ireland and Denmark retroactivity is regarded as a problem of contractual interpretation. Modern doctrine rejecting retroactivity protects the conditional creditor by granting a claim for compensation against the debtor if he culpably frustrated or impaired the title dependent on the condition (cf § 160 BGB, Art 204 Greek Civil Code) or if he executed an interim disposition: all dispositions in rem, which were executed in the meantime, lapse inasmuch as they impair the effects of the condition (cf § 161 BGB, Art 152(3) Swiss OR, Art 206 Greek Civil Code). Ultimately, the differences in practice between the two schools of thought are not as large as may initially be thought because the doctrine of retroactivity is not strictly enforced. Nevertheless, the doctrine of retroactivity seems to be open to criticism, as already recognized by the drafters of the BGB, for, quite excessively, it makes even those interim dispositions lapse which are to the advantage of the conditional creditor. Notably, even the (unsuccessful) Commission de Réforme du Code Civil (1946–47) postulated the abolition of the doctrine of retroactivity. In contrast, the above-mentioned draft Law of Obligations of 2005 still recognizes retroactivity (Arts 1182(2), 1184(1)), but provides an exception from this effect in respect of the benefits already received and even seeks, on a case-by-case basis, to establish a third category, the condition extinctive which is effective ex nunc (Arts 1173(2), 1184(1)), apart from the condition precedent (condition suspensive) and the condition subsequent (condition résolutoire).

In summary, the law of conditions is a rather inflexible branch of law. Noteworthy, however, is the so-called inchoate right (Anwartschaftsrecht). Based upon §§ 160 f BGB, it has been developed by the prevailing opinion since the code’s entry into force. The purchaser of an object which was transferred with a retention of title, and therefore subject to a condition precedent that the last instalment be paid, obtains a transferable, pawnable and seizable and therefore economically utilizable expectancy in rem at the time of delivery, an expectancy which is protected against tortious acts, can be acquired in good faith and is transformed into full title as soon as the last instalment is paid. In Greece, Austria and Switzerland the conditional creditor is also protected by the recognition of such Anwartschaftsrecht.

4. Plans for unification and uniform law

Arts 16:101–103 of the Principles of European Contract Law (PECL), Art III.-1:106 of the Draft Common Frame of Reference (DCFR), and Arts 49 ff of the preliminary draft for a Code Européen des Contrats (Avant-Projet) are concerned with the law of conditions: they recognize conditions precedent and subsequent, deemed fulfilment and non-fulfilment, and they reject the doctrine of retroactivity as far as no agreement to the contrary was reached. A provision concerning interim dispositions executed during the state of pendency was not necessary because the transfer of title was not dealt with in the PECL. Article 51 of the Avant-Projet, however, provides for a claim for compensation for the conditional creditor if his title was impaired contrary to good faith during the state of pendency.

The UN Sales Convention (sale of goods, international (uniform law)) as well as the UNIDROIT Principles do not deal with the law of conditions. However, the third edition of the latter document will contain a chapter which is very similar to the one in PECL and the DCFR.

Literature

ndreas Bertalan Schwarz, ‘Bedingung’ in Franz Schlegelberger (ed), Rechtsvergleichendes Handwörterbuch für das Zivil- und Handelsrecht des In- und Auslandes, vol II (1929) 391; Domenico Maffei, ‘Condizione (dir interm)’ in Enciclopedia del diritto, vol VIII (1961) 761; Gottfried Schiemann, Pendenz und Rückwirkung der Bedingung: Eine dogmengeschichtliche Untersuchung (1973); Wolfgang Marotzke, Das Anwartschaftsrecht, ein Beispiel sinnvoller Rechtsfortbildung? (1977); Reinhard Zimmermann, ‘“Heard melodies are sweet, those unheard are sweeter …”: Condicio tacita, implied condition und die Fortbildung des europäischen Vertragsrechts’ (1993) 193 AcP 121; Reinhard Zimmermann, The Law of Obligations (1996) ch 23; Thomas Finkenauer, ‘§§ 158–163. Bedingung und Zeitbestimmung’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol I (2003); Muriel Fabre-Magnan, Droit des obligations, 1—contrat et engagement unilatéral (2008) 159 ff.

Retrieved from Condition and Time Term – Max-EuP 2012 on 19 May 2022.

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