Two shareholders signed a memorandum of understanding to sell their shares in the company to a third party provided they both sell together. Although a binding agreement was executed with only one shareholder, the purchaser filed a claim to enforce the agreement or to pay the agreed compensation under the agreement.
The Court held the agreement is subject to a condition precedent, which is a conditional agreement that will come into force only if the condition stipulated in it is met. If the condition precedent was not met, the agreement is canceled ab-initio and parties are entitled to reimbursement of anything granted under the agreement. This rule has an exception under which if one of the parties prevented the condition from being fulfilled, such party is not entitled to rely on its non-existence. Here, the shareholder with whom the agreement was executed was interested in executing an agreement with the other shareholder, but the other shareholder did not agree to this for personal reasons. Therefore, it cannot be determined that either party prevented the agreement from materializing and the purchaser’s claim was rejected.