McDonald v. Four Rivers Devel., LLC, discussed yesterday on a procedural point, also addressed the distinction between a condition precedent and a covenant within a contract. The Fifth Court held that a 25% profit margin requirement for commission payments was not a condition precedent but rather a covenant or term of the contract.
It explained, “We do not view the 25% profit margin requirement as a condition precedent that would require a specific denial. The provision – commissions calculated at 6% for any job sold by McDonald in which the overall profit on the job was 25% or more – was the measure of calculating commissions, i.e., a covenant or term of the contract.”
A condition precedent is an event that must occur before a right can accrue to enforce an obligation, while a covenant is an agreement to act or refrain from acting in a certain way. The court emphasized that this did not indicate an “if this, then that” scenario, as typical of a condition precedent. Instead, the 25% profit margin was a term used to calculate commissions, making it a covenant. No. 05-24-00431-CV (March 28, 2025) (mem. op.).