The obligations of a contract exist since it is validly perfected, but it can be agreed that its effectiveness depends on some condition. The condition is the future and uncertain fact on which depends the creation or extinction of a right, an obligation or, in general, legal business.
In the contracts subject to a condition, the acquisition of rights (condition precedent), as well as the resolution of those already acquired (condition resolutory) is made dependent on a fact, which will be the condition.
Unlike the essential elements, the condition is not a requirement for the validity of the contract. It is a circumstantial element of the contract, which is only present if the parties expressly agree.
The existence of the condition is not presumed. It requires an adequate and conclusive proof of the willingness of the parties to subordinate the effects of the contract to the fact that constitutes the condition.
A contract may be validly subject to a tacit condition, without expressly citing the word «condition», when its provisions can be clearly interpreted, the intention of the contracting parties to make the transaction dependent on a future and uncertain fact.
Depending on the moment in which the legal effects are triggered, the condition may be «resolutory» or «suspensive».
The suspensive condition makes an obligation mandatory only if a specified but uncertain event occurs. Under the suspensive condition, the beginning of the effectiveness of the contract depends on the fulfilment of the condition.
In the sales agreement subject to a suspensive condition, the parties’ obligations to fulfil are made dependent on an uncertain future event. (for example, that the seller cancels the existing mortgage loan, that the buyer is granted a loan to pay in full the agreed price, or to rectify some error on the description of the property in the Property Registry).
During the time that elapses since the condition is agreed until it is fulfilled, an «expectation of right» is generated. If the event or condition precedent of the effectiveness of the contract does not occur, it has no effect whatsoever.
The suspensive condition agreed by the contracting parties is null and void if compliance depends exclusively on the will of one of them.
Real estate transactions subject to a suspensive condition may be entered in the Property Registry during the term of the condition.
Essentially, there are two situations in the access to the Land Registry of a real estate transfer under a suspensive condition:
1. The registered and pending condition within the agreed period for compliance. The Register reflects two entitlements, one is the current, as long as the condition is not met; The other is expectant, dependent on the fulfilment of the condition.
2.- the suspensive condition registered after the deadline agreed for the condition to be satisfied. In this case, the two ownerships in the Registry no longer coexist, since one ownership is consolidated and the other is extinguished.
The suspensive condition can be positive or negative.
– The condition is positive when the effectiveness of the contract is made dependent on a future event, in which case, the obligation will expire after the agreed period, or if it is already clear that it will not happen.
If the parties do not set a deadline for the fulfilment of the positive condition, the condition is considered to have not been fulfilled, if the term that, reasonably, would have been agreed, has elapsed without occurring the future and uncertain fact. For example, if the condition Consists of obtaining a building license, after 24 months without having been received, it is reasonable to understand that the condition has not been fulfilled.
– The condition is negative when the effectiveness of the sale is subject to a particular fact is not met. The obligation is effective once the deadline has expired or when there is no doubt that the fact cannot occur.
The condition suspends the effectiveness of the duty so that its legal effects are enforceable for both contracting parties only from the fulfilment of the future and uncertain fact.
The resolutory condition terminates upon fulfilment an already enforceable obligation and entitles the parties to be restored to their original positions. The condition is resolutory when its compliance determines the end of the effectiveness, or the termination, of the contract or obligation.
By the resolutory condition, the parties agree that the fulfilment or non-fulfillment of a fact will result in the resolution, by right, of the sale. For example, when the conditional fact is violated, such as when the buyer does not obtain the necessary credit to pay the part of the price to which he has committed, the resolutory condition produces the repurchase of the property sold.
The resolutory condition can be registered in the Land Registry, through a marginal note.
The most frequent case of a resolutory condition is the one that is included in the contract of sale with deferred payment . In this contract both parties agree on the sale price of the property and, to facilitate the transaction, the seller agrees to defer payment. A payment schedule is agreed upon and, in guarantee, the resolutory condition, according to which, breach of one of the expected payments will result in the termination of the contract, with the recovery of ownership and possession by the vendor.
The purchase agreement with condition precedent differs from the contract of sale with reservation of title agreement. In the first, until full payment of the price, the buyer does not acquire ownership of the property sold; Temporarily, the contract of sale does not produce the effect of the transfer of the domain, until the buyer fulfils its obligation of payment.
Instead, in the contract of sale with a reservation pact of the domain, there is a transfer of ownership to the buyer, but the transfer is void if the condition imposed is not fulfilled.
The differences between the Resolutory and Suspensive condition are::
– The perfection of the contract. In the suspensive condition, the contract has not been perfected, whereas, the contract with a resolutory condition has been perfected.
– Effects they produce. The fulfilment or non-compliance of the suspensive condition makes the perfection of the contract conditional, while compliance or failure to comply with the resolutory condition results in the termination of the contract already perfected.