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Thursday, October 13, 2005

Express Conditions Precedent in the Context of Substantial Performance

130pxtexas_state_sealDoes the doctrine of substantial performance excuse a contractor’s failure to comply with an express condition precedent to final payment that is unrelated to completion of the building?  An appellate court in the Lone Star Sate held: no; while the substantial performance doctrine permits a contractor to sue under the contract, it does not ordinarily excuse the non-occurrence of an express condition precedent.

TA Operating Corporation (“TA”) contracted with Solar Applications (“Solar”) to construct a prototype multi-use truck stop in San Antonio.  The parties expressly agreed that, even after the work to construct the truck stop was completed, Solar was not entitled to final payment until it provided TA with a release of all liens filed in connection with the work.  The parties called this document an “all-bills-paid affidavit,” and they agreed that, as a condition precedent to final payment, Solar had to provide this affidavit to TA. 

When Solar’s work on the truck stop was substantially performed, TA terminated the contract because Solar had not completed certain "punch list" items.  Solar sued TA for breach of contract on the theory of substantial performance.  TA counterclaimed for breach of contract and requested damages due to delays in the construction, alleged defects, and the liens filed against the project by subcontractors.  The trial court severed TA’s counterclaim based on the liens and awarded Solar final payment for the project, less the cost of remediable defects in the construction. 

TA appealed, arguing, among other things, that the doctrine of substantial performance did not excuse Solar’s failure to comply with the express condition precedent to final payment – provision of the all-bills-paid affidavit.  The appellate court sided with TA; quoting Williston’s treatise, the court held:

if the terms of an agreement make full or strict performance of an express condition precedent to recovery, then substantial performance will not be sufficient to enable recovery under the contract.

The court noted that, had Solar provided TA with the affidavit, it would have met the express condition precedent of the parties’ contract, it could have relied upon the doctrine of substantial performance.  The court noted:

[w]hile we recognize the harsh results occasioned from Solar’s failure to perform this express condition precedent, we recognize that parties are free to contract as they choose and may protect themselves from liability by requesting literal performance of their conditions for final payment.

TA Operating Corp. v. Solar Applications Engineering, Inc., 2005 Tex. App. LEXIS 7908 (Sept. 28, 2005).

[Meredith R. Miller]

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