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In Re Carter’s Claim

    Brief Fact Summary. Edwin J. Schoettle Co. (Plaintiff) submitted action to a judge for arbitration disputing the claim presented by Lester Kardon (Defendant) against the escrow fund for $69,998.42 as a liability of the seller under the agreement. Defendant appeals the dismissal of his motion to correct the arbitrator’s award.

    Synopsis of Rule of Law. Resolution of whether a provision is a condition or a warranty depends on the interpretation of the language in the agreement.

    Facts. Plaintiff and its six subsidiaries were available for purchase. Defendant began negotiations for the purchase of the company. The parties entered into a written agreement in which Defendant purchased all the issued and outstanding capital stock of Plaintiff and its subsidiaries. The total purchase price was $2,100,00.00 of which amount $187,863.60 was set aside to indemnify the buyer against the liabilities of sellers by reason of any and all provisions of this agreement. Defendant presented a claim against the escrow fund for $69,998.42 as a liability of the seller under the agreement. The arbitration was submitted to a judge by the sellers. The arbitrator awarded to the buyer $3,182.88 and buyer’s motion to correct the arbitrator’s award was dismissed. Defendant appeals, contending that the financial condition on the date of purchase was less favorable than that reflected in the company’s financial statement and therefore he is entitled to reimbursement out of the escrow fun
    d for the amount of the deficiency. Plaintiff denies the reduction in the financial condition and even if there were the Defendant has no right to reimbursement under the agreement unless the reduction resulted from occurrences outside the ordinary course of business, which caused a materially adverse change in the company’s financial condition. The Defendant contends the provision constituted a warranty on the seller’s part that the financial company was not less favorable than demonstrated by the financial statement, and that the Plaintiff breached this warrant. Plaintiff contend that the provision was a condition and the buyer had the right to refuse a consummation of the sale if the condition was not fulfilled, when the Defendant elected to consummate the sale it waived the condition.

    Issue. Whether the provision constitutes as a warranty or a condition?

    Held. The provision was a condition and not a warranty. Arbitration award affirmed.
    The agreement was carefully and meticulously prepared by counsel after they went through careful negotiations. To be included among the conditions was the financial condition of the company and that the fulfillment of the conditions was to take place not subsequent but prior to or at the closing and the buyers obligations were made subject to the fulfillment of the condition.
    To construe the provisions as creative of a promise for the breach of which the buyer could recover damages would be inconsistent with the other provisions of the agreement. The buyer was under no obligation to complete the purchase. In order to determine if the provision is a condition or a warranty depends on the interpretation of the language of the agreement. Here is it sclera that the parties intended it to be a condition and not a warranty and once the Defendant elected to accept this agreement the provisions ceased to be operative and the Defendant had no right to recover any damages.

    Discussion. A condition is a stipulation or a prerequisite in a contract, in other words a future and uncertain event on which the existence of an obligation depends. A warranty is an express or implied undertaking that something in furtherance of the contract is guaranteed by one of the contracting parties.


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