MANY contracts include a clause which provides a trigger for the activation of that contract.A common example is the clause stating that an agreement for the sale of land or property is conditional upon the approval of bond financing.Another example would be a clause rendering a contract conditional upon the passing of a shareholders’ resolution on the part of one of the contracting parties. Such a clause is referred to as a condition precedent or a suspensive condition.
The effect of fulfilment of that condition precedent is that the whole contract becomes enforceable.This enforceability operates retrospectively as if the contract had been unconditional from the outset.Non-fulfilment of a condition precedent normally renders the contract void.
During the period after signature of the agreement and until the fulfilment of the suspensive condition, the rights (and concomitant obligations) of the parties are held in abeyance, but there is a binding agreement between them, which neither party may renounce, pending fulfilment of the condition.
The suspensive condition may apply to all of the rights and obligations of the parties or only to some of them.Those that are not suspended must be met, regardless.
Where the parties have not expressly fixed a time period for the fulfilment of a suspensive condition, it is implied that it must be fulfilled within a reasonable time.What is reasonable will depend on the circumstances of that particular case. If the condition is not met within a reasonable time the contract will be void, subject to the principles which are discussed below.
One can easily envisage a situation where a party to a contract, subject to a suspensive condition, might change his mind about being bound to the terms of that contract, and who might set about frustrating the fulfilment of the condition with the intention that it will not be met, thereby releasing him from his contractual promises.
To allow such manipulation would be unjust and for that reason our law prevents a party to a conditional contract from deliberately preventing the fulfilment of the condition precedent and then asserting that he is not bound by the contract because the condition has not been fulfilled. This principle is referred to as the doctrine of fictional fulfilment and is based on grounds of equity.
The doctrine of fictional fulfilment protects the innocent party in these circumstances, by requiring that the contract be enforced as though the condition precedent had been fulfilled. In order to initiate the fictional fulfilment, the innocent party will have to show that the other party deliberately prevented the fulfilment of the suspensive condition.
This principle of law is based on the understanding that a party to a conditional contract has a valid and justifiable hope that his contractual rights will become enforceable at some future date.The doctrine protects this legitimate expectation by applying the equitable rule that a party cannot take advantage of his own default to the loss or injury of another.
The doctrine of fictional fulfilment applies to a deliberate and intentional prevention of the fulfilment of a condition precedent, no matter how laudable the motive of such action or failure to act.The negligent failure to fulfil a condition is not sufficient to bring the doctrine into operation – there must be a direct intention to prevent the obligation from becoming enforceable.
The party accused of deliberately preventing the fulfilment of a condition will quite often be heard to say that it did not take the necessary steps towards fulfilment of the condition because any effort on their part would have failed, in any event, to bring about the fulfilment of the condition.Where that party is under a positive duty to try to have the condition fulfilled, the courts take the view that it is equitable to hold that party liable as though the condition had been fulfilled unless it can be shown that the steps to be taken would have been an utter waste of time and money. In other words the task of avoiding the application of the doctrine of fictional fulfilment in these circumstances is not easily accomplished.
There is also a series of cases which extends the application of the doctrine of fictional fulfilment beyond instances relating to the nonfulfilment of a suspensive condition. The same principles have been applied in cases involving the deliberate non-fulfilment of ordinary terms of the contract, that is, those which are not suspensive.For example, the court applied the doctrine in a case where a supplier sold equipment and was entitled to payment once the equipment had been installed and tested.The purchaser prevented the tests from taking place but this term of the contract was deemed by the court to have been performed, giving rise to liability for payment of the purchase price by the purchaser.
Another form of extension of the doctrine is to be found in the context of fulfilment of resolutive conditions. A resolutive condition is one which provides for the termination of the contract after an interim period of operation. It brings the contract to an end upon the happening of a specified event, for example.A fairly common resolutive condition in property deals is one that provides that the sale is to be regarded as void if the necessary planning permission is refused.
It has been held in cases relating to resolutive conditions that, where one party has deliberately caused the fulfilment of that condition thereby relieving him of an obligation which he bore up until the resolutive condition was fulfilled, he nevertheless continues to be bound, by application of a variant of the doctrine discussed above, and which might, rather clumsily, be referred to as the doctrine of fictional nonfulfilment. The parties are then required to act as though the resolutive condition had not been fulfilled.
Contracting parties are expected to keep their promises and the law will not countenance a situation where a party acting in bad faith obtains a benefit from his actions, contrary to what was intended when the deal was struck.