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Washington Properties, Inc. v. Chin

October 12, 2000

WASHINGTON PROPERTIES, INC., APPELLANT,
V.
CHIN, INC., APPELLEE.



Before Schwelb, Farrell and Glickman, Associate Judges.

The opinion of the court was delivered by: Glickman, Associate Judge

Appeal from the Superior Court of the District of Columbia

Hon. A. Franklin Burgess, Jr., Trial Judge

Argued September 14, 2000

Appellant Washington Properties, Inc. ("WPI"), appeals from the order of the trial court granting summary judgment in favor of appellee Chin, Inc., on its claim that WPI breached an option contract by failing to make payments when they were due. WPI contends that summary judgment was improper because there was a factual dispute over the meaning of an ambiguous contract provision which, if construed in WPI's favor, would excuse its non-payment. The issue on appeal boils down to whether the provision created a condition precedent to WPI's obligation to make payment. Finding that the contractual provision in question is not materially ambiguous, that it did not create a condition precedent, and that the trial court's construction of that provision was correct as a matter of law, we affirm.

Under the contract at issue, Chin granted WPI an eight-year option to purchase certain real property in exchange for WPI's payment to Chin of an option fee in annual installments of $20,000 upon execution of the contract and $10,000 on the first, second and third anniversary dates of the execution of the contract. The contract provided that time was of the essence of the agreement. WPI made the initial $20,000 payment but balked at making the subsequent payments when they came due on the ground that Chin had been unable to obtain the consent of its mortgage lender to be bound by the terms of the option agreement. In raising this excuse for not making its payments, WPI relied on Section 12 of the contract, which reads in its entirety as follows:

12. Chin shall obtain the consent of the current noteholder of the deed of trust of the Property to be bound by the terms of this Agreement.

WPI's president testified at his deposition that the purpose of Section 12 was to ensure that WPI's option would survive for a full eight years regardless of any foreclosure in the interim. Although no foreclosure had occurred or was threatened when WPI withheld its option payments, further payments would have increased the dollar amount of WPI's investment at risk in the event of a foreclosure. Hence, according to WPI, the commercially reasonable and intended interpretation of Section 12 was that the lender's consent had to be obtained before further payments were due, and as a condition precedent to WPI's obligation to make such payments.

In granting summary judgment for Chin against WPI, the trial court concluded that Chin's inability to obtain its lender's consent did not excuse WPI's failure to make option payments when they were due; that WPI's failure to make those payments constituted a material breach of the contract; and that WPI's breach entitled Chin to terminate WPI's option.

WPI claims that the trial court erred in granting summary judgment because Section 12 is ambiguous and there is a genuine dispute as to whether that section created a condition precedent to WPI's obligation to make its annual payments. WPI argues further that the only extrinsic evidence in the record regarding the proper interpretation of Section 12, the testimony of its president as to its purpose, supports its position. *fn1 Chin argues, however, that Section 12 is not ambiguous and that the contract contains no requirement that its lender's consent be obtained before WPI is obligated to make further payments. Chin accordingly argues that extrinsic evidence as to the meaning of Section 12 is inadmissible.

Our review of an order granting summary judgment is de novo. "[S]ummary judgment is appropriate where a contract is unambiguous since, absent such ambiguity, a written contract duly signed and executed speaks for itself and binds the parties without the necessity of extrinsic evidence." Holland v. Hannan, 456 A.2d 807, 815 (D.C. 1983). Whether a contract is ambiguous is a question of law. See id. at 815. A contract is not ambiguous merely because the parties disagree over its meaning, and courts are enjoined not to create ambiguity where none exists. See Bagley v. Foundation for Preservation of Historic Georgetown, 647 A.2d 1110, 1113 (D.C. 1994). Rather, "a contract is ambiguous when, and only when, it is, or the provisions in controversy are, reasonably or fairly susceptible of different constructions or interpretations, or of two or more different meanings, and it is not ambiguous where the court can determine its meaning without any other guide than a knowledge of the simple facts on which, from the nature of language in general, its meaning depends." Holland, 456 A.2d at 815 (quoting Burbridge v. Howard Univ., 305 A.2d 245, 247 (D.C. 1973)). While it is commonly said that contracts are to be construed to effectuate the intent of the parties, where a contract is unambiguous, "intent is properly an objective, not subjective, issue." Dodek v. CF 16 Corp., 537 A.2d 1086, 1093 (D.C. 1988). "Accordingly, `[t]he first step in contract interpretation is determining what a reasonable person in the position of the parties would have thought the disputed language meant.'" Id. (quoting Intercounty Constr. Corp. v. District of Columbia, 443 A.2d 29, 32 (D.C. 1982)).

Since Section 12 of the contract does not specify a time for performance, "the law implies that it must be done within a reasonable time." Flack v. Laster, 417 A.2d 393, 400 (D.C. 1980). What constituted a reasonable time for Chin to obtain its lender's consent to be bound by the option contract may well be a factual question that is not susceptible to summary judgment. But that is not the dispositive question in this case. Rather, the dispositive question is whether obtaining the lender's consent was a condition precedent to WPI's duty to make its annual payments. It is undisputed that if Chin's failure to obtain its lender's consent was not a failure of a condition precedent, then WPI committed a material breach when it withheld its option payments sufficient to permit Chin to terminate the contract. And whether or not Chin breached its promise to obtain its lender's consent within a reasonable time does not determine whether fulfillment of that promise was a condition precedent to WPI's performance of its payment obligations. *fn2

A condition precedent may be defined as "an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due." Restatement (Second) of Contracts § 224 (1981); *fn3 see also Brier v. Orenberg, 90 A.2d 832, 833 (D.C. 1952) (condition precedent is "a fact which must exist or occur before a duty of immediate performance of a promise could arise"); Chirichella v. Erwin, 310 A.2d 555, 557 (Md. 1973) (defining condition precedent as "a fact, other than mere lapse of time, which unless excused, must exist or occur before a duty of immediate performance of a promise arises"). No particular form of words is necessary in order to create an express condition; however, words and phrases such as "if" or "provided that," qualifying a promise, are commonly used to indicate that the duty of the promisor has expressly been made conditional. See Chirichella, 310 A.2d at 557. The question whether a provision in a contract "constitutes a condition precedent is one of construction dependent on the intent of the parties to be gathered from the words they have employed and, in case of ambiguity, after resort to other permissible aids to interpretation." Canaras v. Lift Truck Servs., Inc., 322 A.2d 866, 875 (Md. 1974) (quoting Chirichella, 310 A.2d at 557).

On the question of whether Section 12 created such a condition precedent, the contract is not ambiguous. Neither Section 12 nor the contract in its entirety can be read to state that the parties expressly agreed to require Chin to obtain its lender's consent as a condition precedent to WPI's obligation to make its scheduled payments. Cf. Aronoff v. Lenkin Co., 618 A.2d 669, 672, 676 (D.C. 1992) (contract incorporated express conditions precedent). The contract does not purport to condition WPI's ...


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