Louise Reyneke Properties

SUSPENSIVE CONDITIONS... AND THE 'HARSH' CONSEQUENCES OF NON-FULFILLMENT THEREOF

A recent Supreme Court of Appeal judgment illustrates the importance of fulfilling suspensive conditions in an agreement and the consequences of not doing so.

On 11 April 2007, an agreement relating to a property development was entered into between Pangbourne Properties Ltd (Pangbourne) and Africast (Pty) Ltd (Africast). This agreement was subject to a suspensive condition that Pangbourne provide Africast with written notice that its board of directors had approved the purchase of the property within seven working days after conclusion of the agreement by the parties. The agreement was signed by both parties on 11 April, and was subsequently approved by Pangbourne's board of directors on 20 April 2007. Pangbourne provided Africast with written notice that Pangbourne’s board approved the agreement on 25 April 2007. From this date onwards, the parties acted on the basis that the agreement was valid and binding.

In 2008, 18 months after the signing of the agreement, and after buildings had been constructed in accordance with the contract, Pangbourne asserted that the suspensive condition in the agreement had not been fulfilled. And as such, Pangbourne refused to provide Africast with bank guarantees in respect of the fulfilment of its payment obligations under the contract. Africast considered Pangbourne’s new stance as repudiation and, as a result, cancelled the contract and claimed damages for breach of contract.

This claim was rejected by the South Gauteng High Court. Upon appeal to the Supreme Court of Appeal, the Court explained that upon conclusion of a contract containing a suspensive condition, the contract itself is enforceable, but some of its obligations are postponed pending fulfilment of the suspensive condition.

If the suspensive condition is eventually fulfilled, the contract is deemed to have existed from the date when the contract was initially concluded, as opposed to the date on which the condition was fulfilled. If the condition is not fulfilled, then the contract is deemed not to have come into being.

The Court confirmed that the suspensive condition had not been fulfilled and the contract never came into operation. Accordingly, the Court found in Pangbourne's favour, dismissing the appeal with costs.

The judgement of the Supreme Court of Appeal illustrates the importance of ensuring total and timeous compliance with a suspensive condition in a contract. As held by the Court, non-compliance with a suspensive condition vitiates a contractual agreement by rendering the contract void ab initio. As illustrated by the present case, this is the legal position even where one or both of the parties have already delivered performance in terms of the contract.

Information obtained from  Bisset Boehmke McBlain Attorneys, All rights reserved.

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