This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If the party against whom relief is sought on a written contract concedes that the contract was placed in the possession of the adversary party, but claims that it was taken with the understanding that it was not to go into effect until some other or further event should happen, and that such event has not happened, he is not seeking to vary or contradict the contract, but to show that no contract between the parties ever came into effect- Evidence of conditions precedent to the taking effect of a written contract is therefore admissible.1 This is merely the rule that an instrument may be delivered to the adversary party to take effect on the happening of a future event, restated in terms of the parol-evidenec rule.2 Extrinsic evidence may be used to show that a note in the custody of the payee was to take effect only on the happening of some event which never has happened, as between the parties and as against all but bona fide holders.3 Extrinsic evidence is admissible to show that a promissory note,4 or a mortgage,5 should not take effect until the loan for which such instrument was given was made. A contract to the effect that a note shall not take effect until the happening of a certain event and that it shall not be negotiated until such event happens, may be shown as against one who is not a bona fide holder.6 Evidence is admissible to show that a note was to take effect only if the horse for whose price it was given should be warranted,7 or if the stock in a corporation for which such note was given should be delivered in a specified time,8 or that a note which is given for certain stock is not to take effect unless such corporation establishes a store,9 or if the policy of insurance for which it was given should prove satisfactory to the maker of the note;10 that the note was to take effect only if negotiated at a specified place;11 that it was to take effect only if the maker did not demand by a certain day that it should be redelivered;12 that it was to take effect only if the land for which it was given was recovered;13 that it was not to take effect unless the maker should collect an amount which the payee had previously advanced;14 that a written guaranty was conditioned upon the purchase of a certain amount of leather by the party whose credit was guaranteed;15 that an insurance policy was not to take effect until the insured had canceled another policy on the same property in a different company;16 that a written order of goods is to take effect only upon the happening of certain future events,17 as that a contract which is entered into through an agent is to take effect only upon approval by the principal;18 that a written order for goods was to take effect only if the vendee succeeded in canceling a written order previously given to another person;19 that a lease of a mining claim was to take effect only if the lessees shotid be able to obtain a certain amount of money from a third person 20 that a contract to sell mining stock was to take effect only oil condition that the vendor's agent in another town had not already sold the same stock; 21 that a note should take effect only if the transaction as part of which it was given was approved by the attorney of the maker;22 that a written contract of sale should take effect only if the purchase were approved by the engineer of the vendee;23 that the contract should not take effect until the purchaser had had an opportunity to inspect the goods and to approve them; 24 that a note is not to take effect until the maker has an opportunity to examine the property purchased and accepts such property,25 or that an insurance policy, temporarily placed in the possession of the insured, but afterwards withdrawn by the agent, is not to take effect unless approved by the insurance company,26 or that such instrument was not delivered as a completed contract.27 Extrinsic evidence is admissible to show that sureties who sign a bond and leave it in the custody of the obligee do not intend to be bound unless their principal signs such bond.28 Evidence is admissible to show that a contract to pay a commission for a first mortgage loan was not to take effect unless a second mortgage loan was also obtained.29 Evidence is admissible to show that one signed as surety with the understanding that he was to be liable only if others signed with him.30 Extrinsic evidence is admissible to show as between the original parties that the payee knew that the surety signed with the understanding that he should not be bound unless a chattel mortgage was given by the principal debtor to seeure the obligation.31 Even an instrument under seal32 such as a release,33 may be shown in some jurisdictions to have been placed in the custody of the obligee upon condition that it should not take effect unless some specified event should happen. Extrinsic evidence is admissible to show that a sealed release was given upon condition that it should take effect only if the maker of such release was forced into bankruptcy.34 Evidence is admissible to show that a written subscription for stock in a corporation was not to go into effect until a certain number of persons had signed.35 If the payee does not know that the surety does not intend to be bound unless others sign the contract, the surety can not avoid liability to the payee even if the principal debtor delivered the instrument to the payee in violation of his agreement with his surety. This principle applies equally to negotiable notes 36 and to non-negotiable bonds.37 This is not because of the parol-evidence rule, however, but because such facts do not constitute a defense. This principle has been carried so far that a written instrument, purporting to be a contract of sale, deposited with a third person, has been explained orally as a mere memorandum of the terms on which the vendee could exercise an option to purchase.38
2 Stevens v. Inch, 98 Kan. 306, 158 Pac. 43.
3Schine v. Johnson, 02 Conn. 590, 103 Atl. 974.