Contracts contain a myriad of promises that two or more parties agree to be bound by.

These promises can be separated into two categories: conditions and covenants. The difference between the two was recently clarified by the Utah Supreme Court in Mind & Motion Utah Investments, LLC v. Celtic Bank Corp., 2016 UT 6, ¶ 1, 367 P.3d 994, 997.

In Mind & Motion, the Utah Supreme Court analyzed a real estate purchase contract (or "REPC") to determine whether a provision requiring recording of the deed was a covenant or a condition. Mind & Motion had entered into a REPC with Celtic Bank to buy a large plat of land. The contract required Celtic Bank to record the deed by a specified date, but provided that Mind & Motion could extend the deadline at their discretion. When the first deadline arrived, Celtic Bank had failed to record, and Mind & Motion agreed to extended the recording deadline. When Celtic Bank missed the second deadline, Mind & Motion declined to extend the deadline a second time and sued Celtic Bank for breach of contract. Celtic Bank argued that its ability to record the deed depended on when county officials decided to approve its application, so it should not be liable for breach of contract.  

A covenant here, a condition there.

The Utah Supreme Court was asked to determine whether the recording provision was a condition or a covenant. The court stated that because conditions and covenants create qualitatively different obligations under the contract, the distinction between the two would be dispositive of the case.

"A covenant," the court stated, "is a promise between the parties to the contract about their mutual obligations. In essence, covenants are the core bargained-for exchange of an agreement. They create specific legal duties, the violation of which gives rise to remedies for breach of contract." On the other hand,  “A condition is an event, not certain to occur, which must occur before performance under a contract becomes due."

The court then provided three principle differences between conditions and covenants:

1) The parties to the contract have no duty to perform until a condition is fulfilled, so the failure of a condition relieves the parties of all of their contractual duties.

2) The parties have no remedy for breach of contract if a condition is not fulfilled, because at that point there is simply no contract to breach.

3) Conditions typically fall outside the control of the parties to the contract, often requiring some environmental trigger (such as "weather permitting") or action by a third party (such as "upon the lender's approval") for the contract to begin.

"Stated differently, even if one of the parties has some influence over the fulfillment of a condition, its incidence usually is a matter of fate or of the decision of one or more third parties. Covenants, by contrast, are almost always within the control of the contracting parties."

By applying this analysis to the case, the Utah Supreme Court held that Celtic Bank's recording obligation was a covenant, not a condition. As a result, the court found that Celtic Bank breached the contract by failing to timely record. Because a covenant, and not a condition, was violated, Mind & Motion was able to recover damages because the contract was still in force.