In many commercial transactions, contracts often include clauses such as “subject to board approval” or other forms of conditional language. These clauses are not merely procedural, they operate as suspensive conditions under South African contract law. This means the agreement will have no binding legal effect until the condition has been satisfied.
What Is a Suspensive Condition?
A suspensive condition suspends the operation and enforceability of a contract until a specific event or approval occurs. When a contract is subject to such a condition, it remains inoperative and no enforceable rights or obligations arise between the parties until the condition is fulfilled.
For example, if a contract is conditional upon board, trustee, or shareholder approval, it only becomes enforceable once that approval is formally granted.
Legal Consequences of Suspensive Conditions
The legal effect of inserting a suspensive condition into an agreement includes the following:
- No contract is legally binding until the condition is met.
- If the approving party (such as a board of directors) refuses or fails to grant consent within the specified period, the agreement automatically lapses, no cancellation or repudiation is necessary.
- Where no time limit is mentioned, the condition must be fulfilled within a reasonable period; otherwise, the agreement is rendered null and void for non-fulfilment.
It is critical to understand that performance before fulfilment—such as making a payment or delivering goods, carries legal risk. If the condition is not ultimately satisfied, those actions may not be enforceable, and the parties may be forced to reverse their transactions or seek recovery.
How to Minimise Risk in Suspensive Contracts
To reduce legal uncertainty and prevent future disputes, the following safeguards are recommended when drafting contracts with suspensive conditions:
- Specify exactly whose approval is required (e.g., the board, trustees, or a particular committee);
- Include a clear deadline for the fulfilment of the condition;
- Make early performance conditional and reversible, including escrow arrangements, refundable deposits, or conditional document exchanges.
Doing so ensures that neither party acts prematurely and protects against situations where performance is made in anticipation of a contract that ultimately never materialises.
Judicial View on Suspensive Conditions
The Supreme Court of Appeal has consistently confirmed that a contract subject to a true suspensive condition is not enforceable until that condition is met. Any party acting in a manner inconsistent with this principle may unintentionally create legal obligations or trigger a dispute over whether a valid agreement exists.
Final Thoughts
Contracts involving multiple layers of approval, such as transactions requiring corporate, board, or regulatory consent, should be carefully structured to reflect the conditional nature of the arrangement. Precise wording, realistic timelines, and proper procedural mechanisms are essential to ensure legal clarity.
When in doubt, parties should seek legal advice before performing any act in terms of a contract that is still pending the fulfilment of a suspensive condition.
