When entering into a contract for the acquisition of immovable property, and where such an agreement is subject to the Purchaser/s obtaining bond finance, Purchasers must be aware that they have an obligation to apply for such bond and provide the financial institution with all required documents to set the approval in motion.
In the event of a Purchaser failing to oblige in terms of the bond clause, it can have serious repercussions for the Purchaser which entitles the Seller to enforce the sale agreement with no suspensive conditions.
WHAT IS THE DOCTRINE?
If a party to a contract which is subject to a suspensive condition deliberately prevents fulfilment of the condition to avoid being bound by the contract, the condition may be deemed to have been fulfilled.
The doctrine stems from the Roman law principle that a party to a conditional contract has a hope that his contractual rights will become enforceable. This doctrine protects that hope by inserting the concept of fairness into the law of contract by disallowing a party to take advantage of his own default while causing loss to another.
The doctrine reinforces the proposition that where an agreement is subject to a suspensive condition, the party in whose favour the suspensive condition is framed is obliged to take all reasonable steps to fulfil that suspensive condition.
HOW DOES THE DOCTRINE APPLY TO PROPERTY SALES
A classic example of the application of the doctrine in property law is where a contract for the sale of immovable property is subject to a suspensive condition that the purchaser must obtain a mortgage bond by a certain date.
In such a contract the purchaser is obliged to take all reasonable steps to obtain such a bond. The purchaser is thus obliged to take active steps to apply for the bond within a reasonable time and submit all relevant and required documents to the financial institution. The purchaser is also obliged to provide accurate information such that the financial institution can make a proper determination as to whether or not to grant the bond.
If the purchaser deliberately fails to apply to a financial institution for the bond within the specified time, does not submit the relevant documentation or supplies false information, then according to the doctrine of fictional fulfilment the suspensive condition can be deemed to have been fulfilled and the contract will in this way come into existence and be binding on the purchaser despite the purchaser’s efforts to prevent it from doing so.
The doctrine would also apply to any suspensive condition in an agreement of sale and not only to a mortgage bond.
INTENTION AND NEGLIGENCE
The doctrine does not only take effect when the other party to the contract acts fraudulently or without good faith, but rather it includes any deliberate or calculated action to prevent the fulfilment of the condition.
Where a contracting party acts negligently and in so doing fails to apply for a mortgage bond or negligently fails to take steps to fulfil a suspensive condition, the doctrine of fictional fulfilment can also be used.
The question here is whether a reasonable person in the position of the defaulting party would have taken the necessary steps in order to fulfil the suspensive condition. If the reasonable person in the same position as the defaulting party would have taken such steps, then the doctrine will be applicable.
DEFENCES TO THE DOCTRINE
It is accepted by the leading authors that the Plaintiff must prove (a) non fulfilment of the condition, and (b) that the defendant breached his duty with the intention to frustrate the fulfilment. The Defendant must then show that the condition would not in any event have been fulfilled.
The doctrine thus applies where a party prevents the coming into existence of a contract by intentionally taking steps to frustrate the fulfilment of a suspensive condition or where he negligently fails to take the steps necessary to fulfil same.
The doctrine ensures that where two or more persons enter into a contract with the intention to create legal obligations, the innocent party’s hope that the contract will become legally enforceable will not be frustrated due to the defaulting party either intentionally or even negligently not performing his side of the bargain.
WVA – Wietz Viljoen
This article is for general information purposes and is aimed at advising the public. It should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.