Washington Properties, Inc. v. Chin, Inc.
760 A.2d 546, 2000 D.C. App. LEXIS 241, 2000 WL 1511755 (2000)
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Rule of Law:
When a contract provision is unambiguous and lacks explicit conditional language, courts will interpret it as a promise (covenant) rather than a condition precedent to avoid the harsh effects of forfeiture.
Facts:
- Chin, Inc. ('Chin') granted Washington Properties, Inc. ('WPI') an eight-year option to purchase certain real property.
- The contract required WPI to pay Chin an initial fee of $20,000, followed by three annual installment payments of $10,000.
- Section 12 of the contract stated that Chin 'shall obtain the consent of the current noteholder... to be bound by the terms of this Agreement.'
- WPI made the initial $20,000 payment.
- Chin was unable to obtain the consent of its mortgage lender as required by Section 12.
- Citing Chin's failure to obtain this consent, WPI refused to make the subsequent $10,000 annual installment payments when they became due.
Procedural Posture:
- Chin, Inc. sued Washington Properties, Inc. (WPI) in the trial court for breach of an option contract.
- The trial court granted summary judgment in favor of Chin, Inc.
- The trial court ruled that WPI's failure to make its installment payments constituted a material breach of the contract, which entitled Chin, Inc. to terminate the option.
- WPI, as the appellant, appealed the trial court's order to the appellate court.
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Issue:
Does a contract provision requiring a property owner to obtain their lender's consent to an option agreement create a condition precedent that excuses the option holder's obligation to make payments, when the contract does not explicitly link the payment obligation to the lender's consent?
Opinions:
Majority - Associate Judge Glickman
No. A contract provision requiring a party to obtain a third party's consent does not create a condition precedent to the other party's payment obligation unless the contract explicitly makes performance conditional. The court reasoned that the contract is not ambiguous. Section 12 contains no conditional language, such as 'if' or 'provided that,' to link Chin's obligation to obtain lender consent with WPI's obligation to make payments. There is a strong judicial presumption to construe contract language as a promise rather than a condition to avoid forfeiture. Furthermore, the contract's structure shows the parties knew how to create explicit conditions elsewhere but did not do so here, and WPI was already obligated to make its first, largest payment before the consent was even required. Finally, the court declined to impose a 'constructive condition' because Chin's failure did not deprive WPI of the benefit of its bargain, as no foreclosure had occurred.
Analysis:
This decision reaffirms the strong judicial preference for interpreting contract clauses as covenants (promises) rather than conditions precedent, particularly when forfeiture could result. It underscores the importance of precise drafting; parties wishing to make one performance contingent upon another must use clear and explicit conditional language. The case serves as a warning that a party's breach of a promise does not automatically suspend the other party's performance obligations; the non-breaching party's recourse is typically a lawsuit for damages, not self-help through non-performance, unless the breach is material or the contract specifies otherwise.
