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Wednesday, March 30, 2005

Conditions: Failure to comply dooms buyer’s claim

Maryland_flag A buyer who fails to comply with a condition precedent cannot sue for the seller’s breach of the agreement, says the U.S. Court of Appeals for the Fourth Circuit.

In the case, Lockheed agreed to sell one of its operations to BTN.  In reliance on the agreement, BTN took several actions, including ordering telephone service and acquiring insurance.  The agreement, however, required BTN to demonstrate that it had "resources and assets necessary and sufficient to conduct the [transferred business] and to perform its obligations and Contracts."  After BTN had trouble getting financing, Lockheed demanded evidence that it was in compliance.  When BTN failed to satisfy Lockheed, the seller terminated the deal and sold the unit to someone else.  BTN sued, claiming breach of contract and reliance.

Under Maryland law, said the court, there is no duty under a contract if a condition precedent is unfulfilled.  Here, there was no factual dispute that BTN was not in compliance with its obligations.  Lockheed had no duty to go forward, and thus neither tort nor contract claims would lie against it.

Bi-Tech North, Inc. v. Lockheed Martin Corp., 2005 U.S. App. LEXIS 4026 (4th Cir. March 10, 2005).

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