Terms and conditions

We often refer to the provisions in a contract as “terms and conditions”. Examples include “Terms and Conditions of Use” and “Terms and Conditions of Sale”. This article examines how these words are used in English and Chinese, and whether there is a difference in meaning, from a legal perspective. It also considers the circumstances in which the breach of a term or condition will entitle the non-defaulting party to terminate the contract.

The meaning of ‘terms and conditions’

In both English and Chinese, the word “term” [in Chinese “条款” or “条文”] refers generally to any provision in a contract. In English, the word “term” is also used to refer to the period of time during which a contract or an arrangement (e.g. a lease) will have effect.

The meaning of “condition”, on the other hand, is more complicated. In English, “condition” has three possible meanings. The first meaning is synonymous with the word “term”; in other words, it refers to the general terms in a contract. For example, the terms of a sale contract are often referred to as “Conditions of Sale”.

In its second meaning, the word “condition” refers to a requirement that must be satisfied before certain rights or obligations will arise. Such a requirement can be divided into two categories: a “condition precedent” and a “condition subsequent”. A condition precedent is a requirement that must be satisfied – or an event that must occur – before a right or obligation will arise. For example, a bank’s obligation to lend money to a borrower may be conditional upon the borrower satisfying certain conditions precedent, such as the provision of a legal opinion or a drawdown notice. A condition subsequent, on the other hand, refers to an event, the occurrence of which will terminate a right, an obligation or the contract in its entirety. For example, a buyer to an agreement for the purchase of real estate may be able to terminate the agreement if it is unable to raise finance for the purchase. The second meaning above reflects the way in which the term is most commonly used in everyday English. It is also consistent with the way in which the term is most commonly used in Chinese, in both legal agreements and everyday language. Article 45 of the PRC Contract Law explains the difference between a “condition precedent” and a “condition subsequent” as follows:

第四十五条

当事人对合同的效力可以约定附条件。附生效条件的合同，自条件成就时生效。附解除条件的合同，自条件成就时失效。

当事人为自己的利益不正当地阻止条件成就的，视为条件已成就；不正当地促成条件成就的，视为条件不成就。

Article 45

The parties may agree conditions in relation to the effectiveness of a contract. A contract subject to a condition precedent becomes effective when such condition is satisfied. A contract subject to a condition subsequent loses effect when such condition is satisfied.

If a party improperly obstructs the satisfaction of a condition to further its own interests, the condition is deemed to have been satisfied; if a party improperly facilitates the satisfaction of a condition, the condition is deemed not to have been satisfied.

The third meaning of “condition” is very technical and is used in common law jurisdictions to describe an essential (i.e. important) contractual term, the breach of which allows the non-defaulting party the right to terminate the contract (in addition to claiming damages for any loss). Often referred to as a term that “goes to the root of the contract”, a condition is distinguished from the term “warranty”, a breach of which will only allow the non-defaulting party to claim damages for any loss.

A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at law.asia.