Facts
- A seller contracted to sell veal skins to a buyer under two agreements: (1) 15,000 skins for delivery in mid-August 1920, and (2) 6,000 skins for delivery in September 1920.
- Each contract made the buyer’s duty to accept and pay conditional on approval by the buyer’s designated agent/expert.
- Under the first contract, the agent inspected and rejected 3,500 skins; the seller treated that rejection as justified.
- In October 1920, the seller tendered 3,500 replacement skins as conforming; the buyer refused to accept them.
- Under the second contract, the agent inspected and rejected all 6,000 skins.
- The seller sued for damages, alleging the agent’s disapproval was unjustified and withheld in bad faith, including alleged buyer influence over the approval decision.
- A jury found for the seller; the intermediate appellate court affirmed; the buyer appealed.
Issues
- When a contract makes acceptance conditional on a third-party expert’s approval, is the condition excused by an “unreasonable” rejection absent proof of dishonest or bad-faith withholding of approval attributable to the buyer?
- Did the buyer, by its conduct regarding the October tender of 3,500 replacement skins, waive the expert-approval condition for that portion of the first contract?
- As to the 6,000 skins, may the seller recover only upon proof that disapproval was in bad faith and that the buyer controlled or colluded with the expert?
Decision
- The court treated the expert-approval clause as a true condition precedent to the buyer’s duty to accept and pay.
- For the 3,500 replacement skins, the court held the buyer’s conduct waived the approval/inspection condition as a matter of law, making the buyer liable for refusal to accept that tender.
- For the 6,000 skins, the court held the seller could recover only upon proof that the expert withheld approval dishonestly and in bad faith and that the buyer was responsible through control or collusion; mere “unreasonableness” was insufficient.
- The judgment was affirmed in part and modified in part consistent with the differing treatment of the two groups of skins.
Legal Principles
- When parties condition performance on approval by a specified third party, approval is a condition precedent that must occur before the obligated party can be compelled to perform.
- Nonoccurrence of a third-party approval condition bars recovery unless the approval was withheld dishonestly and in bad faith and the obligor participated through control of, or collusion with, the third party.
- An honest disapproval, even if arguably unreasonable, does not excuse a third-party approval condition.
- A contractual condition may be waived by conduct; a party may lose the right to insist on third-party approval for a particular tender where its behavior treats the condition as no longer operative.
Conclusion
The court enforced third-party approval clauses as conditions precedent, permitting recovery despite disapproval only upon proof of bad faith attributable to the buyer, while separately holding that the buyer’s handling of a replacement tender could waive the approval condition and create liability for refusal to accept conforming goods.