Sometimes, even seasoned companies ignore the fundamentals, and learn a lesson the hard way. In this case, the lesson was rather straightforward – if you don’t fulfill the explicit requirements for before undertaking additional work under a contract (a condition precedent), you may not get paid.

In an opinion that was handed down on December 22, an upstate New York appeals court affirmed a lower court’s holding that despite the fact that the plaintiff contractor Phoenix Signal and Electric performed additional, extracontractual work that was needed to fulfill its underlying contract to  install cameras and signs along the New York State Thruway, the appellate court denied this contractor recovery for this additional work.

Doesn’t seem terribly fair, does it?

But here was the problem:  Phoenix failed to strictly comply with the contract’s notification and record-keeping provision, a condition precedent to recovery. In the words of the Court,

“[T]he subject contract explicitly provides that strict compliance with its notification and record-keeping provisions is required as a condition precedent to any recovery, and that claims for extra work are deemed waived in the absence of such compliance. When such a condition is expressly agreed upon by the contracting parties, it “must be literally performed” (Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]). “‘[N]o action for breach of contract lies where the party seeking to enforce the contract has failed to perform a specified condition precedent’” (Carr v. Birnbaum, 75 AD3d 972, 973 [2010], quoting Navilia v. Windsor Wolf Rd. Props. Co., 249 AD2d 658, 659 [1998]). Accordingly, claimant’s failure to comply with its contractual obligation to provide the required notices and reports constitutes a waiver of the extra work claims (see Fahs Rolston Paving Corp. v. County of Chemung, 43 AD3d 1192, 1194 [2007]; Kingsley Arms, Inc. v. Sano Rubin Constr. Co., Inc., 16 AD3d 813, 814 [2005]).”

A harsh lesson indeed.

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Sometimes the obvious still bears emphasis, even in the real estate litigation context.

If your ability to purchase a property hinges upon which your ability to get needed financing (which is often the case), you’d better make sure that this is memorialized in the contract. Otherwise, you could end up like the defendant in Abart Holdings LLC v. Bayou Properties, Inc., and lose your entire deposit when a court finds you in breach of your real estate contract.

In this New York County case, the plaintiff-seller moved for summary judgment on that branch of its claim seeking a  finding that it was entitled to keep the deposit the defendant buyers had placed into escrow as damages for the defendants’ failure to abide by their contract, and close on the property.

In granting the plaintiff seller’s motion, the Court noted that the only reasons proffered by the buyers for failing to close as had been agreed were two-fold, and neither were convincing: (1) that the plaintiff had failed to deliver certain documents at the closing; and, (2) that the defendants had not received the funding that was needed to close, and that had always been understood as a pre-condition, or in legal terms, a condition precedent, to the deal.

And here’s why the defendants’ arguments failed: First, the defendants did not raise the plaintiff’s purported failure to deliver these documents as an issue at the closing, and therefore, this issue was waived; Second -and this is important – since the parties never expressly made the defendants’ ability to secure financing a condition precedent to closing, the Court would not do so now. In support of its holding, the Court summarized the law governing conditions precedent as follows:

“A condition precedent is ‘an act or event, other than the lapse of time, which, unless the condition is excused, must occur, before a duty to perform a promise in the agreement arises.’” (Oppenheimer & Co., Inc v. Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]). “[N]onoccurrence of the condition may yet be excused by waiver, breach or forfeiture.” (Id at 691). ” “Courts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition.”( Id). “If the language is in any way ambiguous, the law does not favor a construction which creates a condition precedent. A contractual duty will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition precedent.” (Ashkenazi v. Kent S. Assoc., LLC, 51 AD3d 611, 611-612 [2d Dept 2008]).

The lesson to be gleaned from this case is clear: if there are conditions that you need fulfilled before you can close on a property, make sure they are memorialized in the contract and/or at the closing.

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