Understanding Resolutory Condition

Study Notes

A resolutory condition is an event, uncertain in its occurrence, upon the happening of which an obligation is extinguished.
Essentially, the obligation is valid until the condition occurs, and then it automatically terminates.
The condition is future and uncertain, similar to a suspensive condition, but with a different effect.

Future event: The condition must relate to a future event. It cannot refer to a past event, since that event already possesses certainty.
Uncertain event: The condition must be uncertain; its occurrence is not guaranteed.
Extinguishes obligation: The happening of the resolutory condition automatically dissolves or terminates the obligation.
Retroactive effect: If the condition happens, all obligations incurred and fulfilled under the agreement are affected by the change in status. This means any past obligation (e.g., previous deliveries made) are cancelled, or must be returned. (Important nuance: this effect often depends on contract terms.)
Conditional obligation: The obligation exists until the resolutory condition is satisfied. The existence of the resolutory condition does not affect the validity of the previous agreement in itself.

An agreement to rent a house until a certain date. Upon reaching that date, the lease agreement is extinguished, and the right to reside in the property ceases.
A contract for a commodity, that is void if the price falls below a specific level. If the price decreases to that level or below, the contract is cancelled.
A loan agreement, with the condition that the loan is automatically returned if the borrower starts a business. If the borrower starts a business, the contract is terminated, and the lender is entitled to the return of the financial aid.

In contrast to a suspensive condition, a resolutory condition does not depend on the fulfilment of the condition to create and give rise to the obligation. With a resolutory condition, the obligation is present and enforceable from the outset, while the suspensive condition makes the act conditional.

Contractual validity: The existence of a resolutory condition does not automatically invalidate the contract. The contract is valid until the condition is fulfilled, with the obligations being conditional.
Consequences of condition fulfillment: The fulfillment of the resolutory condition has retroactive effects (if stated in the terms). This potentially impacts the parties' rights and duties under the agreement from when the agreement was established.
Mitigation of risk and uncertainty: By defining events that could impact an obligation, resolutory conditions allow parties to better manage risk tied to the fulfillment of the obligation.