Condition of resolution For example, if my ship America does not arrive in the United States within six months, I will offer you my cotton harvest. My ship will arrive in a month. My contract with you has been terminated. You can no longer demand payment under this contract.
If America still hasn't arrived in U.S. ports by then, you can send your soldiers after me. But if I don't show up, you can't sue me for breach of contract.
In other words, if America doesn't resolve its dispute with Britain within six months, Britain gets to choose whether it wants to keep the contract alive. If Britain decides not to, then the contract is over and both parties are free to do whatever they want.
This is called a "conditional contract". It's very common in trade agreements when one party knows that another party is going to be delayed by something beyond their control. Like America before it opened its borders to immigrants, people would travel to America but also go to Europe or any other country that offered a better life.
Since America didn't want to shut its doors, it created this system where if its ship didn't arrive in U.S. waters within a certain time frame, the contract would be resolved in favor of America. If it did arrive, then the contract would continue.
A resolutory condition is a condition that, upon accomplishment, dissolves an already enforceable duty. It also gives the parties the right to revert to their earlier positions. For example, if a contract requires both parties to attend a wedding, but only one party fulfills its duty, the other party can dissolve the contract by notifying the first party of this intention.
Resolutory conditions are common in contracts for services. For example, if a contractor agrees to clean a house for $10,000 but does not clean it thoroughly, the homeowner has the right to cancel the contract. If the contractor would not like this outcome, he or she could limit the contractor's ability to dissolve the contract by including a penalty clause in the agreement. A penalty clause means that if the contractor is not given time to complete the job, for example, if the homeowner changes his or her mind too late in the process, the contractor can charge more money for extra work needed beyond what was originally agreed to.
Penalty clauses are not favored by courts and should be interpreted strictly so as not to discourage parties from reaching mutual agreements. However, if a court determines that a penalty clause is reasonable under the circumstances, it may be enforced.
In addition to services contracts, resolutory conditions may appear in other types of agreements as well.
"resolutory period"-period upon which the obligation ceases with a period. Obligations having a resolutory period take effect immediately but expire when the specified day arrives. Article 1193 of the Civil Code Periodical Obligation specifies that "periodic obligations shall cease to exist five years after their date."
Examples of periodic obligations include: mortgage, promissory note, and lease. The expiration of these obligations terminates the rights and duties between the parties. However, if the debtor fails to pay the creditor within the allotted time, the obligation becomes irrevocable.
Irrevocable obligations include guarantees, contracts for the sale of goods, and bank loans. If the debtor fails to pay the creditor, the latter has no choice but to seek payment from the guarantor or buyer. Likewise, if a seller refuses to deliver goods or fail to do so in a reasonable time, the obligation becomes irrevocable.
Once an obligation is irrevocable, it can only be terminated by agreement of the parties or through some sort of justification (for example, duress, force majeure, or loss of the debtor). To terminate an irrevocable obligation, the debtor must return all of the collateral given as security for the debt.