Cox v. SNAP, Inc.

United States Court of Appeals for the Fourth Circuit · 2017 · Contracts

Contractsbreach of contractstock optionsput optionrepurchase obligationprevention doctrinecondition precedentwrongful noncooperation

Facts

SNAP and Cox executed a binding memorandum of understanding on January 12, 2006 under which Cox agreed to provide marketing and business-development assistance to SNAP in exchange for an equity stake. The contract stated that on that same date SNAP "will issue" Cox a non-qualified stock option for 308 shares, with a right for Cox after January 1, 2011 to require SNAP to repurchase the options at a price determined by a contractual formula and paid over five years with interest. Cox attempted to exercise his put option in 2011 and again demanded payment in 2015, but SNAP responded that it owed him nothing. SNAP argued that the contract only promised future issuance of options, that no options were ever issued, and therefore no repurchase duty arose.

Issue

When a contract allegedly makes issuance of stock options a condition precedent to a later repurchase duty, can the promisor avoid liability by relying on non-occurrence of that condition when the promisor itself had the contractual obligation to issue the options and failed to do so? A related issue was whether damages should be calculated using SNAP's actual 2005 sales or an estimated approximate figure stated in the contract.

Rule

Under the prevention doctrine, if a promisor prevents or hinders fulfillment of a condition to its performance, the condition may be waived or excused. The doctrine applies when the promisor materially contributes to the non-occurrence of the condition, including by wrongfully withholding cooperation or failing to take affirmative steps the contract obligates it to take; a party that breaches its own duty to bring about the condition cannot rely on that condition's non-occurrence to defeat liability.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Richmond, Orion Analytics, LLC signed a consulting agreement with Maya Desai. The agreement stated that Orion "will deliver" 4,000 phantom-equity units to Maya on the date of signing, and after three years Maya could require Orion to repurchase those units under a stated formula. Orion never delivered the units and later refused Maya's repurchase demand, arguing that delivery was a condition precedent to any repurchase duty.

Under the majority rule applied here, which is the strongest argument for Maya?

Explanation. The prevention doctrine excuses a condition precedent when the promisor materially contributes to the condition's non-occurrence. That includes failing to take affirmative steps the contract required the promisor to take. Because Orion had the contractual obligation to deliver the units, it cannot avoid liability by pointing to the very non-occurrence it caused.