Conditions subsequent are at the other end of the contract to conditions precedent: termination.
Sometimes called break clauses, exit clauses, escape clauses, they all do the same thing. They end either the entire contract or a part of the contractual obligations.
Preconditions to Conditions Subsequent
Conditions subsequent assume that that a contract is in force. When the condition subsequent is satisfied, the contract comes to an end. The contract terminates under the terms of the contract itself, because the parties agreed that it would.
Effect of Break Clauses
Accordingly, when the specified event or state of affairs is satisfied, either
- the entire contract comes to an end and thereby operates as a break clause for early termination, or
- an obligation to perform part of the contract terminates.
How the condition subsequent operates on the contract depends on the wording of the contract clause which sets up the break provision. The precise wording.
Two Situations to Exit Clauses
The condition subsequent can be drafted in at least two different ways.
It might be drafted to operate as a break clause when a condition continues to be true or continues to be false:
- true condition: while a specified state of affairs continues to exist, or alternately
- false condition: until a specified state of affairs ceases to exist: until an event happens
The operation of conditions subsequent can be affected by implied terms in a contract, such as an implied term not to willingly allow or take steps which would induce a particular state of affairs to arise, or conversely not prevent the occurrence of an event.
Unless the contract says otherwise, the burden of proof will lie with the party seeking to rely on the exit clause to show that the condition subsequent has been satisfied.
Examples Conditions Subsequent
This Agreement shall terminate:
- if the supplier is no longer entitled to sublicence use of the software in accordance with this agreement
- in the event that licensor of the intellectual property to the supplier is terminated by its third party licensor.
- upon force majeure [Events force majeure would be defined elsewhere in the contract]
Break clauses which end contracts though are not usually so clearly worded. They're usually buried in long paragraphs of text which might even be a single sentence of many lines of text.
Many of the comments under the heading conditions precedent apply equally to conditions subsequent.