Tacoma Northpark, LLC v. NW, LLC
96 P.3d 454 (2004)
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Rule of Law:
When a party's contractual obligation is subject to a condition precedent, the party's failure to satisfy that condition is excused and does not constitute a breach of contract if the party made a good faith effort to satisfy it. The standard of review for failure to fulfill a condition precedent is good faith, not impossibility of performance.
Facts:
- On November 22, 1999, O'Connor & Associates, LLC (O'Connor) entered into an agreement to purchase property from NW, LLC (NW).
- An addendum to the agreement stated the offer was 'subject to Seller [NW] providing the final plat approval by City of Tacoma' for 23 buildable lots.
- NW hired an engineering firm, Larson and Associates, to complete the platting process and obtain the required city approval.
- While the plat approval was pending, NW conveyed four unplatted lots to O'Connor and its assignee, United Builders of Washington, Inc., on which they built four model homes.
- NW then encountered financial difficulties and could not afford to pay for the remaining work required to complete the platting process.
- NW offered to sell the property to O'Connor 'as is,' requiring O'Connor to complete the platting process, but O'Connor declined the offer.
- Subsequently, NW sold the property to Tacoma Northpark, LLC, without informing them of the prior agreement with O'Connor.
Procedural Posture:
- Tacoma Northpark, LLC filed a quiet title action in a Washington trial court against multiple defendants, including O'Connor & Associates, LLC (O'Connor) and NW, LLC (NW).
- O'Connor filed a counterclaim against Tacoma Northpark and a cross-claim against NW for breach of contract.
- Following a bench trial, the trial court entered judgment in favor of NW, finding that it had not breached the contract because it made a good faith effort to satisfy the condition precedent.
- O'Connor, as appellant, appealed the trial court's judgment to the Court of Appeals of Washington, Division 2.
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Issue:
Does a party's failure to fulfill a condition precedent in a real estate contract constitute a breach of contract when the failure is due to financial difficulties, if the party made a good faith effort to fulfill the condition?
Opinions:
Majority - Quinn-Brintnall, C.J.
No. A party's failure to fulfill a condition precedent does not constitute a breach of contract if the party made a good faith effort to satisfy the condition. The court first determined whether obtaining 'final plat approval' was a contractual promise or a condition precedent. Based on the contract's language, such as 'This Offer is subject to,' the court concluded it was a condition precedent. The nonoccurrence of a condition precedent prevents the promisor's duty from arising but does not subject the promisor to liability for breach of contract. The proper legal standard to evaluate the failure to fulfill a condition precedent is 'good faith,' not the stricter 'impossibility of performance' standard that applies to contractual promises. Since the trial court found that NW made a good faith effort to obtain the plat approval, its failure to do so due to financial hardship was excused, and it did not breach the contract with O'Connor.
Analysis:
This case clarifies the critical distinction between a contractual promise (covenant) and a condition precedent, establishing that different standards apply to the failure to perform each. By holding that a 'good faith effort' is sufficient to excuse non-performance of a condition precedent, the decision protects parties from breach of contract liability when an external approval or event, largely outside their absolute control, fails to materialize despite their reasonable efforts. This precedent provides more certainty in contracts contingent on regulatory approvals, confirming that financial inability can excuse performance of a condition if good faith was exercised, a much lower bar than the impossibility doctrine which does not typically excuse performance for financial reasons.
