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Posted: October 21, 2016

Party That Frustrates Performance of Condition Cannot Claim Breach Based on Non-Performance

On October 4, 2016, Justice Oing of the New York County Commercial Division issued a decision in Nesconset ZJ 1 LLC v. Nesconset Acquisition, LLC, 2016 NY Slip Op. 31874(U), holding that a party that frustrates the performance of a contractual provision cannot claim breach based on the non-performance of the condition, explaining:

A party to a contract . . . cannot rely on the failure of another to perform a condition precedent to that contract where the party has frustrated or prevented the occurrence of the condition. A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises. Express conditions must be literally performed; substantial performance will not suffice. . . .

The party who frustrates the occurrence of a condition will not only be precluded from using the failure of the condition to avoid the agreement, but also subjects itself to a claim for breach of the implied covenant of good faith and fair dealing. Implicit in all contracts is a promise of good faith and fair dealing that is breached when a party acts in a manner that — although not expressly forbidden by any contractual provision — would deprive the other party of receiving the benefits under their agreement. The breach of the covenant of good faith is a breach of the underlying contract, and the duty of good faith encompasses any promises which a reasonable person in the position of the promisee would be justified in understanding were included. For example, where a party agrees to cooperate in obtaining an amended certificate of occupancy, but then refuses to do so, rendering the other party’s compliance with the contract condition impossible without judicial intervention, its conduct violates the implied covenant of good faith.

(Internal quotations and citations omitted).

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