Merritt Hill Vineyards, Inc. v. Windy Heights Vineyard, Inc.
Facts: P entered into agreement to purchase controlling stock interest in vineyards, brought action against D to recover deposit and consequential damages for D’s failure to produce title policy and mortgage confirmation at closing.
Result: D’s agreements to produce title policy and mortgage confirmation were conditions rather than promises, breach of which excused P’s performance and entitled it to return of its deposit, but not to consequential damages.
Howard v. Federal Crop Insurance Corp.
Facts: Due to heavy rains, Π’s tobacco crop was damaged and unusable. Π plowed and disked the land so he could plant a cover crop. When Π tried to get an insurance claim, Δ, his insurer denied the claim because they had not inspected the damage. The K said in one paragraph “it shall be a condition precedent to the payment of any loss [that the insured provide info regarding the loss]” and in the next “[the crops] shall not be destroyed until the Corporation makes an inspection.”
Issue: Is the latter paragraph a promise or a condition? If it is a condition, its violation results in Π’s forfeiture of coverage. If it is a promise, Δ may recover damages from Π for the elimination of the crop but does not cause a forfeiture of the policy.
Analysis:
Court looks to “general law” for guidelines/rules: (prof notes the guidelines)
There is a general policy opposed to forfeitures
Insurance policies are generally construed most strongly against the insurer
When it’s doubtful whether words create a promise or condition precedent, they’ll be construed as creating a promise
The provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction.
Rst. 261: “Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise…” (CB 597, bottom)
Court holds the relevant portion of the contract specifies something not to be done, but does not state any conditions under which the insurance won’t be payable, or other like words.
Held: If the policy was intended for the latter paragraph to be a condition, it would have been labeled as such like the other paragraphs were. Therefore, this paragraph is a promise, and Π has not forfeited the policy.
Restatement §261: Promises and Conditions: Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometimes mean that one party promises a performance and that the other party’s promise is conditional on that performance.
Illustration: An insurance company A issues B a policy containing the clause “In the event of disagreement as to the amount of loss it shall be ascertained by two appraisers and an umpire. The loss shall not be payable until 60 days after the award of the appraisers when such an appraisal is required.” This provision is a promise to arbitrate AND makes the award conditioned on A’s duty to pay upon disagreement.
Strict Compliance is the rule. Courts frequently avoid applying the strict compliance rule when a forfeiture would result. A forfeiture occurs when one party has relied on the bargain (either by preparing to perform or by actually making part performance), and insistence on strict compliance with the condition would cause him to fail to receive the expected benefits from the deal. See Restatement 2d §227(1)
Moring Building Products Co. v. Baystone Construction, Inc.
Facts: Contract provided that “all work shall be done subject to the final approval of GM’s authorized agent, and his decision in matters relating to artistic effect shall be final, if within the terms of the Contract Documents…the decision as to acceptability shall rest strictly with the Owner, based on the requirement that all work done or materials furnished shall be first class in every respect;” Morin put up the walls, but GM’s rep rejected it–b/c viewed in bright sunlight and from an acute angle, it didn’t give the appearance of a uniform finish; Baystone refused to pay M the balance of the contract price, about 23 thou; Cardozo affirmed verdict & award for Morin
The terms of the contract with regard to “artistic effect” and “decision as to acceptability” are ambiguous, and the circumstances suggest that the parties did not intend to subject Morin’s rights to the rep’s aesthetic whim.
The rejection by GM of the siding would have been proper, even if unreasonable, IF it appeared from the language/circumstances of the contract that the parties intended GM to have the right to reject Morin’s work for failure to satisfy the private aesthetic taste of GM’s rep.
Rst. 2d, 228 (Prof points this out) (Majority position) is: if it’s possible to determine whether a reasonable person in the position of the buyer would be satisfied, an interpretation is preferred under which the condition [that the buyer be satisfied with the seller’s performance] occurs if such a reasonable person in the position of the buyer would be satisfied
Reasonableness requirement is not read into every contract b/c it is not always a reliable guide to the parties’ intentions
(Prof discusses this general distinction) The reasonable person standard is employed when the contract involves commercial quality, operative fitness, or mechanical utility which other knowledgeable persons can judge…the good faith standard is employed when the contract involves personal aesthetics or fancy.
Court holds decides that, even though the contract specifies an approval of artistic effect, the aesthetic considerations were decidedly secondary to considerations of function and cost
This viewpoint is assisted by the fact that the K specified mill-finish aluminum, which is unpainted and not usually uniform; if the uniform finish/aesthetics were altogether that important to GM, it could have ordered a painted siding.
