## Facts

- In June 1954, Kardon (buyer) began negotiations to purchase the Edwin J. Schoettle Co. and five subsidiaries (sellers).
- On September 17, 1954, the parties signed a written, lawyer-drafted stock-purchase agreement for $2,100,000.
- The agreement required $187,863.60 of the purchase price to be placed with an escrow agent to indemnify the buyer against certain seller liabilities and losses covered by the agreement.
- The contract separated seller “Representations and Warranties” from “Conditions Precedent” to the buyer’s duty to close.
- Section 5(g), under “Representations and Warranties,” stated that since June 30, 1954 there had not been any changes in the sellers’ financial condition, assets, liabilities, or businesses other than ordinary-course changes, none materially adverse.
- Section 9, titled “Conditions Precedent,” included Section 9(a), titled “Financial condition at closing,” providing that at closing the sellers’ financial condition would be no less favorable than shown on the June 30, 1954 financial statements.
- Section 10 provided indemnification for “any damage or deficiency resulting from any misrepresentation, breach of warranty, or nonfulfillment of any agreement” by the sellers.
- After the sale closed, the buyer asserted the sellers’ financial condition at closing was less favorable than the June 30 statements and demanded $69,998.42 from the escrow fund.
- The sellers responded that Section 9(a) was a closing condition that allowed the buyer to refuse to consummate the sale if unsatisfied; by closing, the buyer waived that protection.
- The dispute went to arbitration, and the arbitrator awarded the buyer $3,182.88.
- Judgment was entered on the award, and the buyer appealed seeking a larger recovery from escrow based on treating Section 9(a) as a warranty.

## Issues

1. Whether Section 9(a), labeled a “condition precedent” (“financial condition at closing”), functioned as a warranty that could support post-closing indemnification from the escrow fund.
2. Whether the buyer could use extrinsic (parol) evidence to treat Section 9(a) as a warranty despite the contract’s structure and headings.
3. Whether the indemnity and escrow provisions permitted recovery for an alleged shortfall that depended on a failure of a closing condition after the buyer proceeded to closing.

## Decision

- The Pennsylvania Supreme Court affirmed the judgment entered on the arbitration award.
- The Court treated Section 9(a) as a condition precedent to the buyer’s obligation to close, not as a seller warranty promising a post-closing damages remedy.
- Because the buyer consummated the transaction, the buyer waived reliance on the unsatisfied condition as a basis for additional post-closing recovery from escrow.
- The Court held parol evidence could not be used to contradict the written agreement’s allocation of “warranties” versus “conditions precedent” and thereby convert a closing condition into a warranty.
- The indemnification language in Section 10 did not expand liability to cover a theory that required reclassifying a waived condition precedent as a warranty.

## Legal Principles

- A provision expressly placed under “Conditions Precedent” and written as a requirement “at closing” is generally construed as a condition tied to the duty to close, not a warranty that automatically creates post-closing damages.
- The remedy for failure of a closing condition is typically to refuse to close (or insist on satisfaction of the condition), rather than to close and later seek damages based solely on that condition.
- Proceeding with closing while aware of, or assuming the risk of, an unmet condition precedent can constitute waiver of that condition.
- Where parties reduce their bargain to a written agreement that is organized to distinguish warranties from closing conditions, parol evidence is not admissible to vary the writing by recharacterizing a condition as a warranty.
- An indemnity/escrow clause covering misrepresentation, breach of warranty, or nonfulfillment of contractual undertakings does not authorize recovery on a theory that depends on rewriting the contract’s express condition-precedent framework.

## Conclusion

In re Carter’s Claim enforced the contract’s division between warranties and closing conditions, holding that the “financial condition at closing” language in Section 9(a) was a condition precedent designed to protect the buyer’s decision whether to close. By completing the purchase, the buyer waived that condition and could not use parol evidence or the escrow indemnity clause to transform the waived closing condition into a broader post-closing warranty claim for a larger payout.


In re Carter’s Claim, 390 Pa. 365, 134 A.2d 908 (1957)