Conditional obligations in contract law
In French law, the contract is the instrument by which one or more people make a legal commitment. However, certain planned obligations do not immediately produce their effects: we then speak ofconditional obligations. In this case, the birth or execution of the contract depends on the occurrence of a specific event.
What is a suspensive condition?
Suspensive clause or condition: definition
The parties to a contract may provide that it will depend on a suspensive condition. This is a future and uncertain event the completion of which makes the contract fully formed and enforceable. The Civil Code specifies: “The condition is suspensive when its fulfillment makes the obligation pure and simple” (article 1304).
Thus, when the condition is fulfilled, the contract automatically produces its effects, without additional formality. Conversely, if the condition does not come true, the obligation is retroactively canceled : the contract is then deemed to have never existed.
Conditions precedent: rules governed by the Civil Code
However, contractual freedom has limits. Not all conditions are legally valid, and the Civil Code strictly regulates the use of suspensive conditions.
- The condition cannot depend on the sole will of one of the parties. Such a condition, called potestative, results in the nullity of the obligation, because it unbalances the contract.
- The parties must act in good faith. The condition is deemed to have been fulfilled when the person who had an interest in its failure voluntarily prevented its achievement.
- The suspensive condition must be lawful. It cannot be contrary to the law, public order or good morals. Failing this, the condition, or even the contract, is void.
What are the effects of the suspensive condition?
The absence of effect until the condition is met
As long as the suspensive condition has not been fulfilled, the obligation exists latently, but produces no effect. The contract is formed, but its execution is suspended. This waiting period allows the parties to prepare without being legally obligated to perform the contract.
The birth of the obligation in the event of fulfillment of the condition
When the suspensive condition is fulfilled, the obligation becomes pure and simple. The contract then produces its full effects and the parties are required to execute it, without a new manifestation of will being necessary. This marks the starting point of contractual rights and obligations.
Annihilation of the obligation in the event of failure of the condition
If the suspensive condition is not fulfilled, the obligation is retroactively canceled. The contract is deemed to have never existed and neither party can rely on it, in accordance with article 1304-6 of the Civil Code. Each of the parties then returns to the legal situation which was theirs before the conclusion of the contract.
Protection against bad faith behavior
The Civil Code provides for an exception intended to punish bad faith. When the party who had an interest in the non-fulfillment of the condition in prevented the accomplishmentthe condition is deemed fulfilled, in accordance with article 1304-3 of the Civil Code. This rule aims to preserve contractual balance and prevent unfair maneuvers.
What does an offer without suspensive conditions mean?
An offer without suspensive conditions means that the commitment is firm and definitive upon acceptance. The contract does not depend on any future or uncertain event: it immediately produces its effects and the parties are required to execute it without waiting for the fulfillment of a particular condition.
In which cases condition suspensive may be requested ?
Suspensive clauses and real estate purchase
When it comes to real estate purchases, the suspensive clauses are frequently used in order to secure the transaction. They make it possible to make the sale subject to the completion of events, such as obtaining financing, the absence of exercise of a right of pre-emption, obtaining planning authorizations or even the agreement of the co-ownership.
Sale of a co-ownership lot
The sale of a co-ownership lot can be done subject to the suspensive condition of the change of destination of the lot, the completion and success of the procedures with the general meeting of the co-ownership. Example : change of a lot used for commercial premises to premises for residential use.
Commercial lease
In commercial matters, numerous conditions precedent may be provided for. The granting of a commercial lease may in particular be subject to obtaining a commercial exploitation authorizationwhen regulations require it. The Court of Cassation expressly admits the validity of such clauses (Cass. civ. 3ᵉ, March 25, 2014, no. 13-11.322).
Suspensive clauses in other contracts
In the loan contractsa suspensive condition may be linked to the provision of supporting documents, the granting of insurance or the completion of a prior transaction. Likewise, the transfer of a business or shares may be subject to the completion of an audit, the agreement of a co-contractor or the obtaining of financing.
What are the conditions or suspensive clauses of a sales agreement?
In a real estate sales agreement, the suspensive conditions are essential clauses intended to secure the parties, in particular the buyer. They make the final sale subject to the completion of certain events.
Obtaining a property loan
This is the the most common suspensive condition and, in many cases, OBLIGATORY when the buyer finances his purchase with a loan. The sale (unilateral promise of sale, sales agreement) is subject to obtaining a loan. If the loan is refused and the buyer can justify this, the sale is canceled without penalty.
Failure to exercise the right of pre-emption
The sale may be conditional on the absence of exercise of a right of pre-emption, in particular by the municipality (urban right of pre-emption). If a public authority decides toacquire the property in place of the buyerthe condition frustrates the initially planned sale.
Obtaining a permit or authorization
When the buyer’s project involves major work (construction, extension, change of destination), the compromise may provide for a suspensive condition linked to theobtaining a building permit or administrative authorization. Failing this, the buyer can withdraw without losing the immobilization compensation.
The prior sale of another property
It is possible to provide that the purchase is subject to the prior sale of property belonging to the purchaser. This condition allowsavoid a difficult financial situation by accumulating several credits, but it must be precisely regulated (deadline, minimum price, justification methods).
The legal and administrative conformity of the property
Certain conditions precedent relate to the legal situation of the property : absence of serious easements, regularity of constructions, compliance with town planning rules or absence of undeclared mortgage. If a substantial irregularity is revealed, the condition may prevent the sale from becoming final.
How to write a suspensive loan condition?
The essential elements to include
Certain elements allow us to objectively assess whether the purchaser has taken serious steps. A valid loan suspensive condition must therefore explicitly mention :
- The amount of the loan(s) requested.
- The maximum interest rate accepted.
- The duration of the loan.
- The time limit for obtaining financing.
- The number of banking institutions to request, when required.
- The possibility of using an assisted loan (PTZ, approved loan), if applicable
The time limit for fulfilling the condition
The clause must set a specific deadline (often between 30 and 60 days) at the end of which the condition will be deemed to have been fulfilled or failed. At the end of this period, the purchaser must be able to produce either a conforming loan offeror a written refusal loan. Failing this, the condition may be deemed fulfilled.
The buyer’s requirement of good faith
The purchaser is required to act in good faith in his dealings. He must submit loan applications conforming to the characteristics provided for in the clause. A refusal resulting from a manifestly unrealistic request may result in loss of profit of the suspensive condition.
Example of a suspensive loan condition clause
“This sale is concluded under the suspensive condition of the purchaser obtaining, no later than (date), one or more loans for a total amount of (amount) euros, for a maximum duration of (duration) years, at an interest rate not exceeding (rate)%, excluding insurance.
If the loan is not obtained within this period, and provided that the purchaser justifies this by written refusals from banking establishments, this sale will be deemed null and void, without compensation from either party. »
What is the difference between suspensive condition and resolutory condition?
Resolutive condition: definition
The resolutory condition is a modality of the obligation by which the contract is valid and immediately produces its effectsbut can be destroyed later if a future and uncertain event occurs. Until this event occurs, the parties must perform the contract normally.
Differences with the suspensive clause
The essential difference lies in the moment when the contract produces its effects. With the suspensive condition, the contract is on hold : it only becomes fully effective if the planned event occurs. Conversely, with the resolutory condition, the contract is immediately applicable, but it may disappear if the event occurs.
