Pending fulfilment of a condition, a party may not, contrary to the duty to act in accordance with good faith and fair dealing, act so as to prejudice the other party’s rights in case of fulfilment of the condition.
This Article only relates to the acts performed during the period that precedes the time when the condition is fulfilled. It does not concern acts which amount to an interference with conditions. These acts are dealt with by Article 5.3.3.
The situation in which fulfilment of the condition is pending is specific and deserves special treatment in application of the general principle of good faith and fair dealing (see Article 1.7). Indeed, a person who would benefit from the fulfilment of a condition has a conditional right which deserves protection (particularly in the case of a suspensive condition). During the period pending fulfilment of the condition one party’s actions may detrimentally affect the other party’s position. This Article assumes that it is generally better to prevent such actions than to cure their effects.
This Article is also important as a reminder to the parties to consider this issue and even state expressly what measures the person who would benefit from the fulfilment of the condition might take in order to preserve its rights. In commercial practice parties may draft a specific provision (sometimes known as “covenant of ordinary course of business”) that produces effects between the date of signature and the “closing date” and restricts the parties’ right to dispose of assets only to those transactions that fall within the ordinary course of business.
A share purchase agreement entered into between the seller A and the purchaser B provides that the transaction will be completed only if at the closing date all the conditions have been met, including B’s having obtained the necessary credit from its banks. A is bound to restrict its activity to ordinary business management and B is under a duty of confidentiality as to any information concerning the company that it has received in the course of negotiations.