Filed: July 20, 2011
Opinion by Judge Sally D. Adkins
Held: A condition precedent may be waived by a party’s conduct despite a non-waiver clause found in a purchase agreement that requires waiver to be in writing.
Facts: Respondent is the owner and developer of a 33-acre, mixed-use development project. Respondent intended to sell parcels while retaining ownership over a few common parcels that were to be maintained through a collection of an annual Common Area Maintenance (“CAM”) fee from the owners of each parcel.
Respondent entered into a Purchase Agreement with Petitioner for the sale of two parcels where the Petitioner was planning on constructing three residential towers. The Purchase Agreement required the Respondent to establish CAM fees for the Petitioner’s parcels, and provide common area maintenance funding for the other parcels as conditions precedent to the Petitioner completing the purchase, which the Petitioner could enforce or waive. The Purchase Agreement also contained a non-waiver clause that required any waiver to be in writing.
Commencing on May 11, 2006 and continuing until January 2007, Respondent drafted a declaration and a proposed Supplemental Agreement between the parties to handle the CAM fees and the Petitioner had questions on each draft concerning them. Declarations were even recorded on October 30, 2006, December 20, 2006 and January 22, 2007. Prior to the recording of the January 2007 Declaration, Petitioner expressed concerns that there were some changes to the documents agreed upon by the parties that did not appear. Respondent notified Petitioner that it would address its concerns in a Supplement Agreement.
Over the next year, the project proceeded towards closing, and as they approached the original closing date, Petitioner paid $100,000 to extend that date, and soon afterward, Petitioner realized the extent to which the recent housing collapse had reached the markets. Petitioner sought an additional extension and/or a discount from Respondent and the parties could not agree on an acceptable extension deal and throughout these negotiations, Petitioner referenced market difficulties as the major reason for the requests.
On February 1, 2008, Petitioner’s president sent a letter to Respondent asserting that Respondent failed to fulfill the conditions precedent. On March 3, 2008, Respondent responded in a letter asserting that it satisfied the conditions because the Amended Declaration provided for annual assessments through the use of Supplemental Agreements.
Respondent filed a complaint in the Circuit Court seeking a declaratory judgment that Petitioner breached the Purchase Agreement. Petitioner answered, claiming that its obligations were relieved by Respondent’s failure to comply with the terms of the Purchase Agreement.
After both parties moved for summary judgment, the Circuit Court granted Respondent’s motion for summary judgment. Petitioner appealed to the Court of Special Appeals, and in an unreported opinion, the court affirmed the Circuit Court’s decision.
Petitioner then sought certiorari from this Court.
The threshold issue considered by the Court is whether a party can waive a contract right through its actions even if the contract contains a “non-waiver” clause. Relying on Freeman v. Stanbern Const. Co., 205 Md. 71, 106 A.2d 50 (1954), the Court held that oral modifications of a written contract may be established by the preponderance of the evidence even if a contract provides that the contract cannot be varied except through a written agreement by the parties.
The Petitioner argued that there is a distinction between “mutual” waiver and the waiver of a condition precedent. The Court held that there was no distinction and that case law does require mutual knowledge and acceptance, whether implicit or explicit, of the non-conforming action, and that in this case, the alleged waiver was “mutual” in that Respondent drafted and proposed the assertedly non-compliant declaration while Petitioner scrutinized it and provided substantial feedback. The Court added that a condition precedent usually benefits one of the two parties, and the benefited party’s actions will weigh more heavily in those cases.
Based on that analysis, the Court reviewed the Circuit Court’s grant of Respondent’s motion for summary judgment. The Circuit Court, apparently at the suggestion of the parties, resolved the issue on summary judgment, concluding as a matter of law that Hovnanian had waived the condition precedent. Yet, whether subsequent conduct of the parties amounts to a modification or waiver of their contract is generally a question of fact to be decided by the trier of fact. Further, nonwaiver clauses, although not favored by courts, must be considered by the trier of fact. Given the highly factual nature of the waiver inquiry, it is an uncommon case in which the issue can be resolved by summary judgment.
The Court then analyzed the Circuit Court’s decision to grant the Respondent its summary judgment motion. The Circuit Court held that as a matter of law, the Petitioner waived the condition precedent. Relying on University Nat’l Bank v. Wolf, 279 Md. 512 (1977), the Court held that analyzing the subsequent conduct to determine whether a waiver of a contract term has occurred is generally a question of fact to be decided by the trier of fact. In this case, a party must show the intent to waive both the contract provision at issues and the non-waiver clause.
Applying the foregoing rules, the Court reversed the granting of summary judgment and remanded the case to the lower court for the trier of fact to determine whether any party waived any rights.
The full opinion is available in pdf.