Cambria Savings & Loan Ass’n v. Estate of Gross

Brief Fact Summary.

Plaintiff sued Defendant to pay for the installation of siding. The trial court instructed the jury that the contract was a nullity, but that Plaintiff could recover on a quasi-contract action for unjust enrichment. Defendant appealed.

Synopsis of Rule of Law.

If a contract provides that a specified event terminates a duty to perform, that duty is discharged when the event occurs.

Facts.

Gross signed a contract for the installation of siding. Gross planned to obtain disability insurance to cover the cost of the siding. The contract included a handwritten statement from the contractor that the contract would be null and void if Gross was unable to obtain disability insurance. The contractor completed the work despite knowing that Gross had not yet obtained insurance. Gross died, and his estate failed to pay for the siding. The contractor assigned its claim to Cambria Savings & Loan Association (Plaintiff), which sued Gross’s estate (Defendant). The trial court instructed the jury that the contract was a nullity, but that Plaintiff could recover on a quasi-contract action for unjust enrichment. Defendant appealed.

Issue.

Whether a duty to perform is discharged when a specified event occurs, if a contract provides that the event terminated the duty.

Held.

Yes. The trial court’s ruling is reversed and the case is remanded for entry of a judgment notwithstanding the verdict. If a contract provides that a specified event terminates a duty to perform, that duty is discharged when the event occurs.

Discussion.

A duty to perform under a contract is generally discharged, with certain exceptions, if the contract provides that a specific event terminates the duty, and that event occurs. Under § 224 of the Restatement (Second) of Contracts, a condition (previously called a condition precedent) is an event that is not certain to occur, which must occur before performance under a contract becomes due, unless the event’s non-occurrence is excused. Under § 230 of the Restatement (Second) of Contracts, if a contract provides that a specified event terminates a duty to perform or pay damages, that duty is discharged when the event occurs. This is called an event that terminates a duty (previously called a condition subsequent). However, the duty is not discharged if: (1) the specified event occurs as a result of a breach of the promisor’s duty of good faith and fair dealing, or (2) the event could not practically have been prevented, and continuing the duty does not subject the promisor to a materially increased burden. The duty is also not discharged if, before the specified event occurs, the promisor promises to perform the duty even if the event that terminates a duty occurs. In this case, the handwritten statement in the contract is a condition, because obtaining insurance was not an event that was certain to occur, but was required to occur before performance under the contract became due. The failure to obtain insurance was also an event that terminated a duty under the contract. The exceptions under which a duty will be discharged are not present here. It was not impracticable for the contractor to wait to perform under the contract to see whether Gross was able to obtain insurance, and Gross never promised to pay for the work regardless of whether he obtained insurance. It is irrelevant whether obtaining insurance was a condition precedent to performance or the failure to obtain insurance was an event terminating a duty, because in this case, the contractor performed. By doing so, the contractor assumed the risk that, after its performance, Gross would fail to obtain insurance. The fact that the contract contained a condition or described an event that terminated a duty did not prevent the contract from being valid during the time that performance was due. Recovery under a quasi-contract claim for value of the work is therefore inappropriate.