The running of prescription on a debt arising from a contract subject to a suspensive condition commences only upon the fulfilment of that condition, not from the date the agreement is signed, the Supreme Court of Appeal (SCA) has ruled.
The unanimous judgment, delivered on 17 September, emphasises the enforceability of contractual rights as the trigger for prescription under the Prescription Act, rather than the mere existence of a contractual obligation.
The ruling provides authoritative guidance on how the courts should approach the timing of prescription in conditional contracts, ensuring that debtors are not unfairly prejudiced by the premature accrual of time bars.
Background to the dispute
On 5 January 2009, the Johan Lordan Trust entered a written agreement with Tight Business Enterprises CC (TBE) for the sale of a portion of farmland. This agreement was poised to transfer the property separately from an adjacent portion, but it hinged on a suspensive condition outlined in clause 18. That clause stipulated that, by no later than 30 June 2009, the Minister of Agriculture must grant permission for the separate transfer of the specified portion of the farm.
TBE asserted in its pleadings that it successfully obtained the minister’s consent on 4 June 2009, thereby fulfilling the suspensive condition well within the deadline. In the alternative, TBE pleaded that the consent was already in place at the time of signing the agreement, rendering the condition effectively superfluous from the outset.
The Trust allegedly failed to meet its reciprocal obligations under the agreement, prompting TBE to launch a claim for specific performance on 6 March 2012. This claim sought to compel the Trust to honour the sale terms.
The respondents, in their capacity as trustees, mounted a defence centred on a special plea of prescription. Invoking section 11(d) of the Prescription Act, they argued that the three-year prescription period applied to the debt in question. According to their position, this period began ticking on the date the agreement was signed – 5 January 2009 – rendering it extinct by 4 January 2012. By the time TBE served summons in March 2012, the claim had thus prescribed, barring any enforcement action.
TBE countered that prescription could not commence until the suspensive condition was met on 4 June 2009, placing the summons issuance comfortably within the three-year window.
Litigation in the High Court
The matter came before the High Court in Pretoria for determination of the special plea on the pleadings alone, without delving into evidence on the merits. In January 2019, the High Court sided with TBE, dismissing the special plea with costs. It held that prescription began to run only upon fulfilment of the suspensive condition, aligning with the principle that enforceability is the key determinant under the Prescription Act.
The trustees appealed to the Full Court of the same division. In a reversal that set the stage for the SCA appeal, the Full Court overturned the High Court’s decision. It ruled that prescription commenced on the date the agreement was concluded – leading to the conclusion that TBE’s specific performance claim had prescribed.
Nature of suspensive conditions
Judge Lebogang Modiba, who wrote the judgment on behalf of the SCA, addressed the general nature of suspensive conditions.
“A suspensive condition suspends the right to performance or duty to perform pending the occurrence or non-occurrence of a future event specified in an agreement. Pending the fulfilment of the condition, the parties to the agreement are woven into a contractual relationship. One of the consequences of this relationship is that neither party can withdraw from the agreement, and that they owe each other the duty to perform and are entitled to claim performance from the other party,” he said.
Upon fulfilment, rights crystallize, and performance becomes demandable; absent fulfilment, the agreement lapses, potentially giving rise to damages claims.
The Appellate Division, in Corondimas v Badat (1946), deviated from these general principles of contract and formulated what became known as the Corondimas principle. This posits that when a contract of sale is subject to a true suspensive condition, “there exists no contract of sale unless and until the condition is fulfilled … Until that moment, in the case of a sale subject to a true suspensive condition … it is entirely uncertain whether or not a contract of sale will come into existence at some future time.”
Validity and prescription should not be confused
Judge Modiba said the question of whether the agreement was valid from the date of signature or was invalidated by the non-fulfilment of the suspensive condition (as contended by the trustees) had to be settled by the trial court. But this question should not be conflated with the question before the SCA – when prescription started running. Therefore, the Corondimas principle was of limited value in the appeal.
Indeed, the question before the SCA highlighted the importance of not conflating the date of an agreement’s signature with the commencement of prescription. This distinction was rooted in the statutory framework of the Prescription Act. Section 11(d) prescribes a three-year period for general debts, but section 12(1) ties the start of that clock to when the debt becomes “due”. Until then, even a signed agreement imposing binding duties cannot trigger prescription if enforceability remains suspended.
Drawing on established authorities, the SCA said a debt is due when it is immediately claimable by the creditor and, as its correlative, it is immediately payable by the debtor. Put differently, the debtor must face an immediate obligation to pay, and the creditor must hold the right to sue for recovery. In the context of a suspensive condition, this immediacy is absent until fulfilment.
Critically, the SCA distinguished validity from enforceability.
Citing Tuckers Land and Development Corporation (Pty) Ltd v Strydom (1984), Judge Modiba said the legal nature of an agreement subject to a suspensive condition is that no obligations can be enforced until the condition is met. Upon fulfilment of the suspensive condition, the agreement is perfected. Thus, TBE could not claim performance before 4 June 2009; the debt was not “due” then, per the Prescription Act’s dictate.
The trustees invoked the ex tunc (from then) principle to asserted that the parties’ rights under the agreement were deemed to flow from, relate to, and be in force from the signing date. This meant the performance TBE sought was due immediately upon signature, rendering all rights unconditional and enforceable from that moment, and thus subject to prescription from inception.
The SCA said this view was inconsistent with the principle in ABSA Bank Ltd v Sweet and Others (1993), where the Court concluded that “the ex tunc effect is a contractual fiction to regulate mutual rights between the parties. Therefore, the principle does not override the prescription rules under the Prescription Act and cannot render a debt due when its enforceability is suspended by a suspensive condition.” This fiction governs inter-party relations but yields to the statutory prescription timelines.
The SCA concluded that the principles of prescription, as enshrined in the Act, apply squarely to suspensive agreements. Prescription began to run only once the suspensive condition was fulfilled, because this was when TBE could institute a claim for specific performance. TBE’s summons on 6 March 2012 thus fell within the three-year period from 4 June 2009. The SCA dismissed the alternative pleading as irrelevant, given the success on the primary case.
The SCA upheld TBE’s appeal, granting costs including those for two Counsel. It set aside the Full Court’s judgment and remitted the matter to the High Court to determine the merits.
Click here to download the judgment.
