The SCA Confirms Expired Contracts Are Unenforceable When A Suspensive Condition Fails

Overview

The Supreme Court of Appeal (SCA) of South Africa has delivered a key ruling, affirming that a contract containing a suspensive condition automatically becomes null and void if that condition is not met within the set timeframe. The court confirmed that such an expired contract cannot be resurrected simply by extending the deadline.

The judgment in the case of Maria Luisa Palma Codevilla v Paula Jane Kennedy-Smith NO and Others reinforces a long-established principle of contract law: the failure of a suspensive condition on the 'longstop' date renders the entire agreement unenforceable, requiring a completely new contract to be concluded should the parties wish to proceed.

This decision serves as a powerful warning to all contracting parties that strict adherence to suspensive conditions is paramount. Missing a deadline ends the contract's legal life.

Background to the Codevilla Case

The matter originated from a sale agreement for immovable property signed on 4 February 2020. The Offer to Purchase (OTP) included a suspensive condition: the buyer had to secure written approval for a R4.95 million mortgage bond by 14 February 2020.

Shortly after, the parties agreed to a first addendum, moving the bond approval deadline to 19 February 2020. The buyer failed to secure the required financing by this revised date. It was accepted by all that the suspensive condition had not been met, meaning the OTP had automatically lapsed.

The following day, 20 February 2020, the buyer sought another extension, leading to a second addendum. This new document altered the terms, requiring:

• Written bond approval for R1.5 million, and
• A bank guarantee for the remaining R1.95 million by 25 February 2020.

Although the buyer paid the R1.95 million directly to the conveyancer on 21 February, the required bond was never approved. Subsequently, citing financial strain from the COVID-19 pandemic, the buyer cancelled the deal and demanded the return of the cash paid.

Legal Dispute and the SCA's Finding

The central argument was whether the second addendum had successfully revived the lapsed OTP, thereby making the sale agreement legally valid. The seller argued the contract remained in force; the buyer maintained it had lapsed, and the funds should be refunded.

While the High Court initially sided with the seller, the SCA overturned this decision, offering a more rigorous interpretation of contract law.

The SCA's judgment restated the legal position:

• A contract subject to a suspensive condition is held in abeyance until the condition is met.
• If the condition is neither met nor waived by the specified date, the entire agreement automatically lapses.
• Once lapsed the agreement cannot be revived simply by extending the deadline. The parties must execute an entirely new agreement.

In the Codevilla matter, the contract expired on 19 February 2020 when bond approval failed. The second addendum, despite the parties' intentions, was legally useless as it attempted to resuscitate a contract that was, in law, already dead.

The SCA further noted that:

• The parties' genuine intention to continue the transaction does not supersede the legal requirement to form a new contract once the original lapses.
• The Second Addendum failed to meet the formalities required under the Alienation of Land Act 68 of 1981, which dictates that all material terms of a land sale must be in writing and properly signed.
• The addendum did not constitute a new agreement; it merely sought to extend the already expired suspensive condition without properly reconstituting the entire deal afresh.

Broader Confirmation: The Vantage Goldfields Case

These principles were subsequently reaffirmed in the later case of Vantage Goldfields SA (Pty) Ltd v Siyakhula Sonke Empowerment Corporation (Pty) Ltd and Another. Here too, the SCA addressed whether an agreement that had failed due to an unfulfilled suspensive condition could be resuscitated by an addendum.

The Court held firmly that once a suspensive condition fails, the contract terminates automatically. If the parties wish to proceed, a new contract is mandatory.

The SCA also offered practical advice in this second judgment:

• A new agreement may replicate the terms of the original, but it must contain a new suspensive condition.
• "Recycling" the original, now expired, suspensive condition into the new agreement will render the new agreement void.

Core Principles

• Strict Adherence to Suspensive Condition Deadlines: Failure to do so will cause the contract to lapse automatically.
• Intention is Not Enough: A simple desire to proceed is not enough to preserve or revive a lapsed contract. Legal formalities must be followed.
• Start Afresh: To proceed with the same deal after a suspensive condition fails, parties must enter into a fresh agreement with new terms and suspensive conditions.
• Statutory Compliance is Non-Negotiable: Compliance with statutory formalities, especially when dealing with the sale of land, is mandatory.

The SCA's recent rulings underscore a fundamental aspect of South African contract law: a contract reliant on a suspensive condition remains conditional and legally ineffective until the condition is met. Once the stipulated time passes without fulfilment, the agreement expires permanently. Parties must approach these situations with legal precision and, where required, begin the contractual process again from the start.