Parties executed a purchase agreement for the purchase of a Cofix coffee shop operating under the chain’s franchise, but the chain refused to approve the sale and the purchasers demanded repayment of the consideration.
The Court held that the purchase agreement is an agreement on a condition precedent that did not materialize and therefore the purchasers are entitled to a refund of their money. An agreement that requires the consent of a third party is considered an agreement for which obtaining such consent is a condition precedent or a conditional agreement. The consent of the third party is not required for the execution of the agreement, but is what grants it validity. Moreover, insofar as the consent of a third party is required to give effect to the agreement, the principle of good faith demands that the seller act positively for the purpose of obtaining such consent or, by its own failure, will bring on the invalidation of the agreement due to non-compliance. Here, the terms of the franchise stipulate that it cannot be transferred without the consent of the franchisor. The purchasers were not aware of the extent of said requirement prior to execution of the purchase agreement and the sellers did not actively act to obtain the franchisor’s approval as required. The sellers' failure, among other things, resulted in the franchisor withholding its approval and the default of the condition precedent and therefore they are obligated to return to the purchasers the consideration paid.