In depth
Have you found yourself in the unenviable position where a suspensive condition in a contract has not been fulfilled by the specified longstop date? A contract subject to a suspensive condition suspends the operation of the obligations flowing from the contract until the suspensive condition is fulfilled or waived. If the condition is not fulfilled or waived by the specified date, the contract lapses and becomes unenforceable. The Supreme Court of Appeal (SCA) in the case of Maria Luisa Palma Codevilla v Paula Jane Kennedy-Smith NO and Others had to consider if such a lapsed agreement could be revived.
On 4 February 2020, the Purchasers entered into a sale agreement to purchase a house from the Seller, which offer to purchase (OTP) was accepted by the Seller. A material term of the OTP and the suspensive condition in question was that the sale of the property was subject to approval in writing by a bank for a mortgage bond in the amount of R4 950 000 by 14 February 2020.
On 10 February 2020, the deposit was paid. The following day, the Seller and the Purchasers concluded an addendum to the OTP ("First Addendum") in which they mutually agreed to extend the date on which the approval of the mortgage bond was required from 14 February 2020 to 19 February 2020. All other material terms and conditions remained in full force and effect. The Purchasers had difficulties acquiring finance and failed to obtain the approval by 19 February 2020. Thus, it was common cause that the OTP had lapsed.
On 20 February 2020, the Purchasers requested an additional extension to provide the funds. The Seller then agreed to a second addendum to the OTP ("Second Addendum") with the following suspensive conditions:
- The Purchaser must have mortgage bond approval in writing from a bank of R1 500 000.00 and
- The Purchaser must provide a bank guarantee for the cash portion of the purchase price of R 1 950 000.00, to be issued and supplied to the conveyancers by 09:00 on 25 February 2020.
Following the signature of the Second Addendum, instead of providing a bank guarantee, the Purchaser paid R1 950 000 into the conveyancer's trust account on 21 February 2020. Subsequently, the Purchasers began facing financial difficulties due to COVID-19, they could not meet their financial commitments and cancelled the agreement. Following this cancellation, the Purchasers tried to recover the cash amount paid to the Seller. Upon seeking legal advice, the Purchasers were advised that there was no valid agreement and that the OTP had, in fact, lapsed when the suspensive condition to obtain the mortgage bond for the purchase consideration failed to be met by 19 February 2020 and that the Second Addendum did not revive the OTP. The Purchasers thus demanded a refund of R1 950 000. However, the Seller disagreed that the OTP had lapsed and demanded payment from the Purchaser.
The High Court found in favour of the Seller in finding that the Addendum "revived" the OTP and that the OTP remained in force; however, the SCA disagreed with this view. The SCA's analysis confirmed that a contract subject to a suspensive condition suspends the operation of the obligations flowing from the contract until the condition is fulfilled or waived. If the condition is not fulfilled or waived by the specified date, the contract lapses and becomes unenforceable. This principle is well-established in South African contract law.
In the current case, the suspensive condition required the Purchasers to secure a mortgage bond by 14 February 2020, which date was later extended to 19 February 2020 through the First Addendum. The Purchasers failed to meet this extended deadline, causing the OTP to lapse. The court emphasised that once the suspensive condition lapsed, the contract could not be revived by extending the deadline; a new agreement had to be concluded. The court further held that the purported revival and extension of the OTP after the expiry date were legally incompetent and the original OTP and the Second Addendum were declared invalid and unenforceable.
The SCA also considered the intention of the parties. It was noted that the parties intended to continue with the sale of the property, as evidenced by their actions before and after signing the Second Addendum. However, the court emphasised that the intention to revive the OTP was insufficient to make the revival legally valid. The court further noted that the Second Addendum did not comply with the formalities required by the Alienation of Land Act 68 of 1981, which requires the whole contract of sale, including its material terms, to be reduced to writing and signed in wet ink by or on behalf of the parties.
The SCA also addressed the argument that the Second Addendum could be interpreted as a new agreement. It was found that the Second Addendum did not constitute a new agreement, as it merely attempted to extend the deadline for fulfilling the suspensive condition.
Conclusion
This judgment underscores the importance of adhering to the terms of suspensive conditions in agreements and clarifies that once such a condition lapses, the original agreement cannot be revived without entering into a new contract.
Another more recent judgement that dealt with a similar question was the case of Vantage Goldfields SA (Pty) Ltd v Siyakhula Sonke Empowerment Corporation (Pty) Ltd and Another. Similar to the Codevilla case, the SCA again had to consider if the primary agreement, which contained a suspensive condition, could be revived through a subsequent addendum. It is important to note that the principal agreement contained a clause stating that if the conditions lapsed, the agreement itself would also lapse. The SCA maintained its position as held in the Codevilla case. However, it went further by providing some practical guidance on remedying the situation. The SCA stated that the parties can enter into a new agreement with the same terms and conditions as the old agreement; however, they would have to alter the suspensive condition to a new one. If the new agreement retained the same suspensive condition as the old agreement, the condition would become void due to the inclusion of an already lapsed suspensive condition.
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Limani Mangaliso, Trainee Solicitor, contributed to this legal update.
