Johnson v. Coss

Citation. 667 N.W.2d 701 (S.D. 2003)

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Citation667 N.W.2d 701 (S.D. 2003)

Brief Fact Summary.

Plaintiff sued Defendant for breach of contract and breach of the covenant of good faith and fair dealing when Defendant could not secure consent and approval from Ford to purchase Plaintiff’s car dealership. The circuit court granted Plaintiff’s motion for summary judgment.

Synopsis of Rule of Law.

A party who materially contributes to the non-occurrence of a condition precedent is required to perform under the contract.

Points of Law - Legal Principles in this Case for Law Students.

The prevention doctrine does not require proof that the condition would have occurred but for the wrongful conduct of the promisor; instead it only requires that the conduct have contributed materially to the non-occurrence of the condition.

View Full Point of Law

On January 7, 2000, George Johnson (Plaintiff) entered into an Asset Purchase Agreement (Agreement) with Lawrence Coss (Defendant), by which Plaintiff agreed to sell Defendant his Ford Motor Company (Ford) auto dealership. The Agreement included an express condition, which provided that the Agreement would be nullified if Defendant was unable to secure the consent and approval of Ford. Before granting consent and approval, Ford required Defendant to find an on-site manager that Ford considered capable of operating a dealership. The manager was to own a substantial interest in the dealership. Defendant found Mark Goodrich, who would serve as manager of the dealership with a 50 percent ownership interest. Defendant and Goodrich were to jointly capitalize the dealership with $1 million. However, Ford advised Defendant that it would not approve the plan unless there was a majority owner and the dealership was capitalized with $1.476 million. Defendant revised the arrangement to give himself a 50.1 percent ownership of the dealership. Defendant was ultimately unable to meet all the requirements set forth by Ford, and Defendant’s attorney for the transaction averred that conversations between Ford and Defendant made clear that Ford would not approve the sale of the dealership to Defendant. Defendant informed Plaintiff that because he could not secure Ford’s approval, the Agreement was null and void. Plaintiff sued Defendant for breach of contract and breach of the covenant of good faith and fair dealing. The circuit court found that Defendant was responsible for preventing Ford from granting approval and granted Plaintiff summary judgment.

Issue.

Whether a party who materially contributes to the non-occurrence of a condition precedent is required to perform under the contract.

Held.

Yes. The court of appeals’ ruling is reversed and the case is remanded. A party who materially contributes to the non-occurrence of a condition precedent is required to perform under the contract.

Discussion.

Generally, where a contract contains a condition precedent, there is no obligation to perform the contract until the condition is fulfilled. One exception is the prevention doctrine, which requires a party to perform where he or she prevents the condition from occurring. The prevention doctrine excuses performance of the condition where the party against whom that condition operates contributes materially to the non-occurrence of the condition. Here, summary judgment against Defendant was inappropriate because there is a genuine issue of material fact as to whether Defendant materially contributed to the failure of the condition in the Agreement. The evidence demonstrates that, pursuant to Ford’s requirements, Defendant identified a manager who would co-own half the dealership. When Ford required that one of the co-owners have a majority interest, Defendant revised his business plan to give himself a 50.1 percent interest in the dealership. Ford then required that the dealership be capitalized at $1.476 million as opposed to the proposed $1 million. Defendant continued to work towards meeting Ford’s requirements by establishing a new corporation to operate the dealership and submitting personal and financial information. Ultimately, Defendant was unable to meet all of Ford’s requirements, and Ford represented to Defendant’s attorney that Ford would not approve the sale of the dealership to Defendant. Based upon these facts, this court finds that Defendant asserted enough effort to raise a material issue of fact as to whether Defendant materially contributed to the non-occurrence of the condition.