Before inserting a particular condition into a contract, one must be aware of the differences between a resolutive and a suspensive condition as more than often, the difference between the two is unknown to the parties themselves resulting in unexpected consequences when the contractual relationship falls apart.
A suspensive condition suspends the rights and obligations under a contract until the condition is fulfilled. Once the condition is fulfilled the contract is deemed to have been in force from the effective date, not from the date of the fulfilment of the suspensive condition.
However, if the suspensive condition is not fulfilled, then no binding contract between the parties comes into existence. This is not remedied by either party performing in terms of the contract.
One must therefore be very clear as to the date by when the condition must be fulfilled. If the condition is not met by the agreed date it may result in a party performing under the contract, which the party believes to be binding only to find out too late down the line that the contract is not binding and that the party is unable to claim specific performance or contractual damages.
An example of a suspensive condition would be as follows:
“Mrs Smith must provide proof that she has resigned as a director by 15 March 2018 or such later date as may be agreed between the parties”.
When dealing with a resolutive condition, the contract is immediately binding with all rights and obligations coming into existence from day one of the contract and there is no suspension of these rights and obligations. Unlike a suspensive condition, if a resolutive condition is fulfilled, it would have the effect of terminating the contract with retrospect between the parties and the operation of the rights and obligations between the parties would immediately cease to exist. The parties would then need to be restored to their pre-contractual state, which is often complicated as this may for example require the unbundling of a complicated transaction. In this instance it may be better suited, to avoid such unbundling, to make use of a suspensive condition as opposed to a resolutive condition.
An example of a resolutive condition would be as follows:
“In the event Mrs Smith does not provide proof that she has resigned as a director of ABC Company by 15 March 2018 the contract will be deemed to be cancelled and be of no force or effect”
Dingley Marshall Inc
This article should not be used or relied upon as professional advice and is for information and marketing purposes. Please consult with one of our attorneys should you need legal assistance relating to this area of law.