Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

تمرين 3

COMPANY PROFILE The first Midas muffler repair shop opened in Macon, Georgia, in 1956. Within ten years, Midas had added shock absorber services and expanded beyond the United States into the European market. By 1986, Midas had added brake services and opened shops around the world. Today, with more than 1,700 locations, Midas is a leader in muffler and exhaust services. It also offers comprehensive auto programs for tires, maintenance, and commercial fleet services. Recently, the company has renewed its focus on its franchise and real estate businesses.
BACKGROUND AND FACTS Eugene Cushman agreed to transfer two Midas muffler shops to Pack 2000, Inc. The deal included leases for the real estate on which the shops were located. Each lease provided Pack with an option to buy the leased real estate subject to certain conditions. Pack was to pay rent by the first day of each month, make payments on the notes by the eighth day of each month, and pay utilities and other accounts on time. Pack, however, was often late in making these payments. The utility and phone companies threatened to cut off services, an insurance company canceled Pack's liability coverage, and other delinquencies prompted collection calls and letters. When Pack sought to exercise the options to buy the real estate, Cushman responded that Pack had not complied with the conditions. Pack filed a suit in a Connecticut state court against Cushman, seeking specific performance of the options. The court rendered a judgment in Pack's favor. Cushman appealed.
IN THE LANGUAGE OF THE COURT
Lavery, J. [Judge]
* * * * When a lease provides the lessee with the option to purchase realty subject to certain terms and conditions, the right of the lessee to exercise the option is contingent on the lessee's strict compliance with those terms and conditions.
* * * * The defendant claims that the plaintiff has lost its right to exercise the options at issue because it has not strictly complied with the conditions precedent to the defendant's duty to perform. A condition precedent is a fact or event which the parties intend must exist or take place before there is a right to performance. * * * Whether the performance of a certain act by a party to a contract is a condition precedent to the duty of the other party to act depends on the intent of the parties as expressed in the contract and read in the light of the circumstances surrounding the execution of the instrument. [Emphasis added.]
In the present case, the two lease agreements provide that the defendant's duty to perform under the terms of the options is conditioned on the plaintiff's "compliance with the terms and conditions of the Lease, the Letter of Intent, and Management Agreement
* * *." Additionally, the management agreement provides that the plaintiff must be in "full compliance with the management agreement" in order to exercise the options to purchase the defendant's realty. Under the terms of these agreements, the plaintiff is required to make periodic payments to the defendant and to certain third parties by specified deadlines. We conclude, therefore, that the plaintiff's right to exercise the options is subject to a condition precedent- namely, the timely submission of the aforementioned payments.
Upon our review of the record, we find ample support for the * * * finding that the plaintiff was often late in making the required payments. Accordingly, * * * the plaintiff did not strictly comply with the terms and conditions of its agreements with the defendant. We conclude, therefore, that the plaintiff did not have the right to exercise the options to purchase the defendant's realty because the plaintiff was not in strict compliance with the contracts that set forth the terms of the options.
DECISION AND REMEDY A state intermediate appellate court reversed the lower court's judgment and remanded the case for the entry of a judgment for the defendant. A party retains its right to exercise an option to buy real estate only by strict compliance with the conditions precedent to its exercise of the option. In this case, the plaintiff did not strictly comply with those conditions.
WHAT IF THE FACTS WERE DIFFERENT? Suppose that Pack had late payments. Would the result in this case have been different? Explain.
THE ECONOMIC DIMENSION Why are rent and other payments due under a lease subject to strict time deadlines?