When a contract is subject to a suspensive condition, the contract comes into effect only once the condition is met. On a practical level, this could involve a future event such as a deposit payment, securing a loan, or even meeting conditions like graduating from university to receive a bonus payment.
Suspensive conditions are commonly encountered in contracts for the sale of immovable property. However, they are often misunderstood, which can result in limited recourse for the parties involved.
According to Mia v Verimark Holdings (Pty) Ltd (522/08) (2009) ZASCA 99 (18 September 2009):
“The conclusion of a contract subject to a suspensive condition creates ‘a very real and definite contractual relationship’ between the parties. Pending fulfilment of the suspensive condition, the eligible content of the contract is suspended. On fulfilment of the condition, the contract becomes of full force and effect and enforceable by the parties in accordance with its terms. No action lies to compel a party to fulfil a suspensive condition. If it is not fulfilled, the contract falls away and no claim for damages flows from its failure. In the absence of a stipulation to the contrary in the contract itself, the only exception to that is where one party has designedly prevented the fulfilment of the condition. In that event, unless the circumstances show an absence of dolus (intent) on the part of the party, the condition will be deemed to be fulfilled as against that party, and a claim for damages for breach of the contract is possible.”
In other words, the fulfilment of a suspensive condition is a prerequisite for a contract to come into force and effect. Along with meeting the suspensive condition, several other requirements must also be satisfied for a contract to be valid.
This discussion focuses on the challenges posed by misconceptions surrounding the nature and effect of suspensive conditions, as well as issues arising from non-compliance with such conditions. It also explores relevant legal defences, illustrative case examples, and the general requirements for valid contracts, specifically in relation to contracts for the sale of immovable property.
Requirements of Valid Contracts
- Consensus: The parties must reach a conscious agreement, with a genuine concurrent intention.
- Contractual Capacity: The parties must be legally capable of concluding a binding contract. They must be over the age of 18 years, of sound mind, and not insolvent.
- Legality: The contract must be lawful and may not contradict any statutory or common law rule.
- Possibility of Performance: The performance must be determinable and possible at the time of conclusion.
- Formalities: The contract must comply with any formalities set by law or agreed upon by the parties themselves. For example, in terms of Section 2 of the Alienation of Land Act 68 of 1981, all contracts for the sale of immovable property must be in writing and signed by both parties.
All of the above requirements must be fulfilled in addition to any suspensive condition for a legally enforceable contract to come into existence.
The Court held in this case that the Defendant had not established that the Plaintiffs had waived the suspensive condition. As a result, the sale agreement had lapsed, and the Plaintiffs were entitled to the return of the deposit with interest.
Another important case to take note of is Eloff & Another v Dekker (2008) JOL 21331 (C).
The Facts: The Plaintiffs, a mother and daughter, purchased immovable property in Gordon’s Bay. The sale agreement was subject to a suspensive condition that they obtain bond approval by a specific date. The Plaintiffs’ bond was approved, but for a lesser amount than required. Believing the sale agreement had therefore lapsed, they requested repayment of their deposit.
The Seller admitted that the bond had not been approved for the correct amount but alleged that the Plaintiffs had accepted the lesser bond and, in doing so, had waived the suspensive condition relating to the bond. The Seller maintained that the sale agreement was therefore valid and binding, and rejected the Plaintiffs’ request for repayment of the deposit.
As a result, the matter proceeded to court.
What the Court Held
The Court confirmed the principle that a mortgage bond clause in a sale agreement is for the exclusive benefit of the purchaser.
It further confirmed that a purchaser may unilaterally waive the benefit of the suspensive condition relating to the obtaining of the bond, provided the waiver takes place before the deadline for fulfilment of the suspensive condition.
The Court also held that there is a presumption against waiver, meaning that any waiver must be clear and unequivocal.
In this specific case, the Court found that the Defendant had not established that the Plaintiffs had waived the suspensive condition. As a result, the sale agreement had lapsed, and the Plaintiffs were entitled to the return of their deposit with interest.
In Summary
Where an agreement for the sale of immovable property includes a suspensive condition requiring the Purchaser to obtain a mortgage bond:
- The agreement remains suspended until the bond is approved.
- If the bond is not approved by the due date and for the required amount, the sale agreement will lapse.
- If the Purchaser obtains a lesser bond and wishes to accept it, they may unilaterally waive the bond condition, provided the waiver occurs before the end of the time period for obtaining the bond.
- The Purchaser’s waiver must be clear and unequivocal (and should preferably be in writing).
- The waiver may be included in an addendum, signed by both the Seller and Purchaser, should the Seller agree. The addendum must be signed before the deadline for obtaining the bond.
- Any extensions to the bond approval period must also be contained in an addendum signed by both the Seller and Purchaser.
Doctrine of Fictional Fulfilment and Waiver of the Suspensive Condition
As previously stated, in addition to the requirements for legally enforceable contracts in terms of common law, any suspensive conditions contained in a contract must first be fulfilled. Simply put, if a contract is breached, it cannot be enforced if the requirements or suspensive conditions have not been met. As a result, damages often cannot be claimed.
Under this common law principle, where a party wilfully prevents a suspensive condition from being fulfilled, the aggrieved party may rely on the doctrine of fictional fulfilment to remedy the situation. This means that the defaulting party will be required to perform their obligations as though the contract had never been subject to a suspensive condition at all. If they fail to perform, they may be held liable for damages arising from the breach of contract.
Several cases have applied this doctrine, including Du Plessis & Smith NNO v Goldco Motor & Cycle Supplies (2008) SCA 372.
Waiver of a Suspensive Condition
In some instances, a purchaser may waive the suspensive condition, removing the need for its fulfilment and rendering the contract legally valid and enforceable.
This principle was illustrated in Abraham Willem Adriaan Coetzee v Anna Catharina Van der Walt (Free State High Court, Case No. 2589/2004).
The Facts: On 27 June 2003, the parties entered into a Deed of Sale for a fixed property. A dispute later arose, with the respondent alleging that the contract had lapsed. The applicant disputed this allegation and applied to the court for relief, seeking an order declaring the contract valid. The contract was subject to suspensive conditions, including the payment of a deposit.
What the Court Held
In the judgment, the Court made reference to MIA v D J L Properties (Waltloo) (Pty) Ltd and Another 2000 (4) SA 220 TPD, where it was held that the suspensive condition protected the purchaser and that the purchaser could waive it. It was further held that by raising a bond for less than the stipulated amount and opting to provide guarantees for the full purchase price, the purchaser had effectively waived the protection of the suspensive condition.
The issue of waiver of a suspensive condition was also considered in Westmore v Crestanello and Others 1995 (2) SA 733 WLD. The Court held that the real distinction between these two cases lay in when a purchaser should waive the protection and who is intended to be protected by the suspensive condition in question.
In the Westmore case, the Court held that the purchaser must waive the protection of the suspensive condition before the cut-off date of the condition. In the MIA case, it was held that where a suspensive condition is not waived, the contract lapses once the condition expires. The Court also noted that “whatever happened thereafter was, to use a phrase borrowed from Shakespeare, ‘much ado about nothing,’ and could not ‘breathe new life into the corpse.’”
This means that no contract comes into existence where the suspensive condition is neither waived nor fulfilled. Consequently, no remedy can be pursued for breach of a contract that never legally existed.
Conclusion
Contracts for the sale of immovable property are intricate and must be carefully reviewed to ensure their validity and enforceability.
