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19. If the buyer sues the shareholder for breach of contract, is the buyer likely to prevail?
The shareholder subsequently refused to consummate the sale on the ground that the buyer had neglected to request the parent company's approval of the contract, which was true. The parent company's chief executive officer, however, is prepared to testify that the parent company would have routinely approved the contract if requested to do so. The buyer can also prove that he has made a substantial sale of other assets to finance the stock purchase, although he admittedly had not anticipated any such necessity when he entered into the stock purchase agreement.
A buyer contracted in writing with a shareholder, who owned all of XYZ Corporation's outstanding stock, to purchase all of her stock at a specified price per share. At the time this contract was executed, the buyer's contracting officer said to the shareholder, «Of course, our commitment to buy is conditioned on our obtaining approval of the contract from our parent company.» The shareholder replied, «Fine. No problem.»
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The non-occurrence of an express condition will discharge the contractual obligation of a party who is subject to the condition unless the non-occurrence of the condition has been waived by that party. In other words, the effect of non-occurrence of the condition will depend on whose obligation is subject to it.
After a condition has failed to occur, the party whom the condition was intended to benefit may choose to ignore the non-occurrence and continue with their performance. Such a waiver after non-occurrence is not a really a promise and therefore does not need consideration or detrimental reliance to be binding.
In addition to expressly waiving a condition, a waiver will be implied by: (i) the continuation of performance by the person who would have benefitted from the condition; and (ii) the acceptance of benefits under the contract by that person. When this occurs, the promisor is often said to have «waived» the condition.
Prevention doctrine is a common law principle of contracts that says a contracting party has an implied duty not to do anything that prevents the other party from performing its obligation. A party who prevents performance of a contract may not complain of such non-performance.
A is correct. The express condition in the buyer-shareholder contract relating to the parent company's approval («our commitment to buy is conditioned from the parent company») affects the buyer's but not the shareholder's obligation. The facts suggest that both the buyer and the parent company are ready and willing to consummate the sale, meaning it appears that those parties waived the non-occurrence of the condition.
B is incorrect. If the buyer himself did not have reason to expect that the contract would induce such a change in position on the buyer's part, then the buyer's reliance was not reasonably foreseeable to the shareholder either.
C is incorrect. The buyer and the parent company waived the non-occurrence of the condition.
D is incorrect. Although the buyer's failure to obtain the parent company's approval might have provided a basis for an excuse of the condition under prevention doctrine, the issue presented here is the effect of the nonoccurrence of the condition on the shareholder's obligation to sell.