A potential tenant did not act with sufficient diligence to enter into a lease agreement with the landlord and thus, in practice, prevented the fulfilment of the condition precedent in the agreement between it and the current tenant.
The Court accepted the claim due to consummation of the agreement in bad faith. An agreement with a condition precedent is legally binding from the moment of its execution and therefore the parties are obligated to consummate it in good faith. This obligation imposes parties bound by an agreement with a condition precedent, an obligation to act positively and diligently to fulfill the condition precedent and not only to avoid action that would lead to its thwarting. Here, the agreement between the parties was conditioned on the execution of a lease agreement between the potential tenant and the landlord. However, instead of acting diligently to conclude an agreement, the potential tenant proceeded, for months, in a sluggish manner, bidding its time in its negotiations with the landlord, thus leading to the non-fulfillment of the condition precedent. Therefore the agreement was not performed in good faith and it was required to pay the liquidated damages.