Johnson v. Coss
2003 S.D. LEXIS 112, 667 N.W.2d 701, 2003 SD 86 (2003)
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Rule of Law:
A party to a contract cannot rely on the non-occurrence of a condition precedent to excuse performance if that party's own actions materially contributed to the condition's failure. Whether a party's conduct constitutes such prevention is a question of fact for a jury to decide.
Facts:
- On January 7, 2000, George Johnson and Lawrence Coss entered into an Asset Purchase Agreement for Johnson's Ford dealership.
- The agreement contained a condition precedent stating it would be 'null and void' if Ford Motor Company did not approve the transfer of the franchise to Coss.
- Ford informed Coss that it would not approve him as a sole owner and required an on-site manager who also held a substantial ownership interest.
- Coss identified Mark Goodrich as a potential manager/co-owner to satisfy Ford's requirement.
- Ford then revised its requirements, stipulating that one owner must hold a majority interest and increasing the required initial capitalization from a proposed $1 million to $1.476 million.
- After several conversations with Ford representatives, Coss's attorney concluded Coss could not meet Ford's requirements.
- Coss's attorney sent letters to both Johnson and Ford, stating that because Ford's requirements could not be met, the agreement was null and void.
Procedural Posture:
- George Johnson sued Lawrence Coss in South Dakota circuit court (the trial court) for breach of contract and breach of the covenant of good faith and fair dealing.
- Johnson filed a motion for partial summary judgment on the contract claims.
- Coss filed a cross-motion for summary judgment seeking dismissal of Johnson's complaint.
- The circuit court granted summary judgment in favor of Johnson, ruling that the agreement failed due to an act of Coss.
- The circuit court denied Coss's motion for summary judgment.
- Coss, as the appellant, appealed the grant of summary judgment against him to the Supreme Court of South Dakota.
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Issue:
Does a party's own conduct that materially contributes to the non-occurrence of a condition precedent excuse that condition, thus allowing a breach of contract claim to proceed?
Opinions:
Majority - Zinter, Justice
Yes, a party's conduct that materially contributes to the failure of a condition precedent excuses that condition under the prevention doctrine. The court held that while the failure of a condition precedent generally bars enforcement of a contract, the prevention doctrine serves as an exception. This doctrine excuses the non-occurrence of a condition if the party who would benefit from its failure materially contributed to it. Here, there were genuine issues of material fact as to why Ford's approval was not obtained—Johnson alleged Coss's actions caused the failure, while Coss alleged he made reasonable efforts but could not satisfy Ford's escalating demands. Because the question of whether a party's interference amounts to prevention is a question of fact, it must be decided by a jury, making the circuit court's grant of summary judgment improper.
Analysis:
This case illustrates the critical interplay between conditions precedent and the implied covenant of good faith and fair dealing, as embodied in the prevention doctrine. The decision establishes that the determination of whether a party's actions 'materially contributed' to the failure of a condition is a factual inquiry, not a legal one to be decided on summary judgment. This raises the bar for parties seeking to summarily enforce or void a contract based on a failed condition, as courts will require a fact-finder to scrutinize the parties' efforts to fulfill the condition. The ruling reinforces that a party cannot actively or passively hinder a condition and then use its failure as a shield against a breach of contract claim.
