Condition precedents in commercial agreements

Condition precedent clauses are a frequent feature in certain commercial agreements. They set out typically the events that must take place before the parties are obligated to perform. These clauses are commonly accepted as being fundamental to the enforceability of any such agreement but the Supreme Court of Appeal’s (“SCA”) findings In Noel Patrick McGrane v Cape Royale The Residence[1] reveal important factors that ought be examined in the consideration of their enforceability.

In this case, the court considered the validity of an agreement for the sale of immovable property in the context of the non-fulfilment of a condition precedent clause embodied in the agreement – the relevant condition being that the purchaser obtain a loan within 21 days following the date of acceptance of the offer to purchase. Interestingly, the purchaser argued that the condition was not applicable to him as he did not require the loan in order to comply with the agreement. This argument was rejected by the High Court and the agreement was held to be without force and effect.

The SCA adopted a different view to the High Court and, in accepting the purchaser’s argument, held that the purchaser did not require a bond or a loan in order to effect the purchase price, that the relevant condition only created an obligation in the event that such a loan was necessary and, further, that the seller himself did not initially consider the agreement as having failed due to the non-fulfilment of this clause.

The findings of the SCA confirm that “subject to bond” clauses are for the sole benefit of the purchaser who is entitled to waive such benefit on a unilateral basis. More generally, these findings also reveal that the conduct and/or implicit intention of the parties to any such agreement may be considered in the adjudication of whether the non-fulfilment of a condition precedent clause indeed renders an agreement invalid.

We trust that you found this article informative, please email info@hjw.co.za for any assistance regarding the drafting or review of commercial agreements.

This article is provided for informational purposes only and should not be substituted for legal advice on any specific matter. Any opinions expressed herein are subject to the law as at the time of writing and will change in accordance with any change in the law. We recommend that you contact HJW Attorneys at info@hjw.co.za directly for advice applicable to your specific matter.