John J. Capistrant vs. Lifetouch National School Studios. Inc.

Lifetouch sells photography services to schools and other organizations across the

nation. In 1980, Capistrant began working as a photographer and sales representative for

Lifetouch in its Minneapolis office. In 1981, Capistrant transferred within the company to

the California office. Capistrant took over as Territory Manager of the San Francisco Bay

Area in 1986 and entered into the contract with Lifetouch that is at issue in this appeal.

The pertinent portions of the contract for our purposes include Paragraphs 8 and 11, and

Exhibit B.

The contract provides that Capistrant would manage certain territory. In exchange

for his management, Paragraph 8 provides that he would be compensated as described in

exhibits attached to the agreement. One of those exhibits, Exhibit B, clarifies that

Lifetouch would compensate Capistrant entirely with “commissions.”

Section III of Exhibit B, entitled “Residual Commission and Payments For

Restriction Against Competition,” explains Capistrant’s right to, and the calculation of, a

post-employment “residual commission.” This paragraph also specifically makes

reference to Paragraph 11 of the contract, acknowledging that “the provisions of

Paragraph 11 of the Agreement shall be extended and shall apply during the period

Territory Manager is entitled to receive Residual Commission payments.” The parties also





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agreed that if, “at any time,” Capistrant “breaches the provisions of Paragraph 11 of the

Agreement, in addition to Lifetouch’s other remedies, Lifetouch shall be entitled to

terminate Lifetouch’s obligation to make any payments of Residual Commission that have

not yet been paid by giving Territory Manager written notice of such termination.”

Under Paragraph 11, entitled “Restriction Against Competition,” Capistrant agreed

for a period of 24 months after his employment that he would not “[d]isclose any trade

secrets and confidential information,” “solicit or deal with any school included in

Lifetouch’s Business,” or “solicit any present or future employee of Lifetouch for the

purpose of hiring or attempting to hire such employee.” A separate clause at the end of

Paragraph 11 additionally provides that Capistrant would “immediately deliver to

Lifetouch all of Lifetouch’s property” that was in Capistrant’s possession or control at the

end of his employment. We refer to this last clause of Paragraph 11 as “the return-of

property clause.”

The present dispute stems from a disagreement between Capistrant and Lifetouch

about the interpretation of the residual commission provision described in Exhibit B. Over

the years, Capistrant and Lifetouch disagreed about how his commissions, including the

residual commission, were or would be calculated. The disputes arose as Lifetouch

expanded Capistrant’s territory or asked Capistrant to execute new agreements regarding

his commissions. Capistrant refused to sign a new agreement.

By 2014, Capistrant was planning for retirement, and some of these past disputes

remained unresolved. In September of 2014, Capistrant commenced a declaratory

judgment action in district court requesting a declaration of the parties’ respective rights





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and duties under the employment contract, including the proper calculation of the residual

commission he was to be paid under the contract.

In March of 2015, while this litigation was still in the discovery phase, Capistrant

retired. Three months later, in response to Lifetouch’s discovery requests, Capistrant’s

counsel disclosed that Capistrant had in his possession a large number of Lifetouch’s

documents, including customer lists, sales data, payroll records, financial statements, and

business plans that he had kept after his retirement.1

On June 26, 2015, Lifetouch demanded that Capistrant return the documents he had

retained. Capistrant returned the documents within three business days of this request.

On August 4, 2015, Lifetouch also demanded that Capistrant give it access to his

e-mail account; Capistrant complied. Lifetouch’s forensic expert then determined from a

review of electronic files that the Lifetouch materials Capistrant had sent to his personal

e-mail account had not been shared with outside sources.

In January of 2016, the parties each moved for summary judgment on the issue of

Capistrant’s right to a residual commission. Capistrant asserted in his motion that he is

entitled to summary judgment against Lifetouch because it is contractually obligated to pay

him a residual commission. Lifetouch argued in its motion that its obligation to pay the



1 The record establishes that Capistrant returned his office keys and company laptop on the last day of his employment with Lifetouch. Capistrant alleged in the district court that a senior Lifetouch employee allowed him to forward electronic documents, including work e-mails, to a personal e-mail account on his last day. Lifetouch disputes this allegation.





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residual commission was excused because Capistrant failed to comply with the return-of

property clause.

The district court concluded that the return-of-property clause was a condition

precedent to Lifetouch’s payment of the residual commission. The court rejected

Capistrant’s argument that the court should not enforce the condition because to do so

would result in an inequitable forfeiture. Specifically, the court concluded that the

language of the contract is “clear,” and “[e]quity cannot rescue [Capistrant] from his

contractual obligations.” The court granted summary judgment to Lifetouch on this issue,

holding that Capistrant was not entitled to the residual commission under Exhibit B,

Section III because he failed to satisfy his obligations under the return-of-property clause.

Capistrant appealed, and the court of appeals reversed. Capistrant v. Lifetouch Nat’l

Sch. Studios, Inc., 899 N.W.2d 844 (Minn. 2017). The court of appeals concluded that the

district court did not err in considering the return-of-property clause as a “condition

precedent to Lifetouch’s duty to pay [Capistrant] his residual commission.” Id. at 854. But

the court of appeals determined that the district court did err in failing to recognize that,

read as a whole, the non-compete provisions and the residual commission provision

“function as a non-compete agreement with a forfeiture clause.” Id. And the court of

appeals also determined that the district court erred in not applying “binding precedent on

the unenforceability of disproportionate forfeiture clauses and overbroad non-compete

agreements.” Id.

The court of appeals turned to section 229 of the Restatement (Second) of Contracts,

and held that the “the timing of the return of property was not a material part of the





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contract” and “a forfeiture of potentially $2.6 million for retaining proprietary documents

and e-mails, when there is no evidence of an intent to compete and when it is undisputed

that there is no evidence of any dissemination of the retained documents” would cause a

disproportionate forfeiture. 899 N.W.2d at 857. The court of appeals therefore concluded

that Capistrant’s failure to immediately return Lifetouch’s property was excused as a matter

of law. Id. at 859–60. We granted Lifetouch’s petition for review.2

ANALYSIS

This case comes to us after the district court granted Lifetouch’s motion for

summary judgment. On appeal from summary judgment, we review de novo whether there

are any genuine issues of material fact and whether the district court erred in its application

of the law to the facts. Commerce Bank v. W. Bend Mut. Ins. Co., 870 N.W.2d 770, 773

(Minn. 2015). Lifetouch contends that Capistrant’s knowing failure to immediately return

Lifetouch’s property at the end of his employment relieves Lifetouch of its contractual



2 We also granted Capistrant’s request for cross-review on two issues. Based on our review of the record, we affirm the court of appeals on both of these issues. First, we reject Capistrant’s argument that under a broad definition of “immediately,” he complied with the return-of-property clause. We agree with the court of appeals that no definition of “immediately,” as that term is used here and under the facts of this case, can encompass an almost three-month delay in the return of Lifetouch’s property. See Capistrant, 899 N.W.2d at 851 (“ ‘Immediately’ is an unambiguous term”). Second, we reject Capistrant’s claim that Lifetouch’s contractual right to terminate the payment of the residual commission is an illegal penalty. The illegal-penalty argument that Capistrant makes is grounded in our liquidated-damages jurisprudence. See Gorco Constr. Co. v. Stein, 99 N.W.2d 69, 75 (Minn. 1959) (holding that a penalty is an agreed-to sum that is greatly disproportionate to the actual damages). This case is not about liquidated damages because Lifetouch does not contend that the residual commission amount forfeited by Capistrant’s breach accurately represents the damages caused by Capistrant’s failure to return its property. The liquidated-damages or penalty analysis therefore is not applicable to the forfeiture clause at issue in this case.





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obligation to pay the residual commission to Capistrant. Specifically, Lifetouch asserts

that the return-of-property clause operates as an absolute precondition to its duty to pay the

residual commission. Capistrant argues that his immediate return of Lifetouch’s property

was not a material term of the contract, and thus any breach cannot excuse Lifetouch’s

performance. The court of appeals agreed with Capistrant, holding that “immediate”

compliance with the return-of-property clause was not a material term of the parties’

contract, and thus Capistrant’s non-compliance could be excused. 899 N.W.2d at 860.

Both the court of appeals and the district court concluded that the return-of-property clause

“created a condition precedent to Lifetouch’s duty to pay Capistrant any residual

commission.” 899 N.W.2d at 853.

A condition precedent is a contract term that “calls for the performance of some act

or the happening of some event after the contract is entered into, and upon the performance

or happening of which [the promisor’s] obligation is made to depend.” Lake Co. v. Molan,

131 N.W.2d 734, 740 (Minn. 1964) (citation omitted) (internal quotation marks omitted);

see also Carl Bolander & Sons, Inc. v. United Stockyards Corp., 215 N.W.2d 473, 476

(Minn. 1974) (explaining that a condition precedent is a fact that must occur before the

promisor is obligated to perform). We have said that “if the event required by the condition

does not occur, there [is] no breach of contract.” 451 Corp. v. Pension Sys. for Policemen

& Firemen, 310 N.W.2d 922, 924 (Minn. 1981); see also Crossroads Church of Prior Lake

MN v. Cty. of Dakota, 800 N.W.2d 608, 616 (Minn. 2011) (explaining that several

conditions of the parties’ oral contract were “unfulfilled,” and thus performance under the

contract was not required); Nat’l City Bank v. St. Paul Fire & Marine Ins. Co., 447 N.W.2d





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171, 178 (Minn. 1989) (“[N]o legal principle permits violation of a contract condition to

be completely ignored.”). Our precedent reflects the “general rule” that “conditions . . .

must be literally met or exactly fulfilled, or no liability can arise on the promise qualified

by the condition.” 13 Richard A. Lord, Williston on Contracts § 38.6 (4th ed. 2013). But

we have never explicitly decided whether the breach of a condition precedent must be

material in order to relieve the non-breaching party of its obligation under the contract.

Lifetouch, citing to the general rule regarding conditions precedent, contends that

conditions precedent are always material, and so the court of appeals erred in excusing

Capistrant’s failure to perform the material condition of returning Lifetouch’s property

immediately upon his retirement. But the return-of-property clause at issue here operates

differently than the conditions at issue in our cases applying the general rule. Here, the

parties had been performing under the contract for 28 years before the condition became

operative, and the condition came into play only as the parties’ employment relationship

was ending. Moreover, the consequence of failing to comply with the return-of-property

clause would be the forfeiture of millions of dollars.

In this unique context, we agree with the court of appeals that guidance can be drawn

from the Restatement. Section 229 provides: “To the extent that the non-occurrence of a

condition would cause disproportionate forfeiture, a court may excuse the non-occurrence

of that condition unless it was a material part of the agreed exchange.” Restatement

(Second) of Contracts § 229. Section 229 is consistent with our precedent regarding

forfeitures.





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We look with disfavor on forfeitures of all kinds, see Harris v. Bolin, 247 N.W.2d

600, 602 (Minn. 1976) (discussing how covenants against competition with forfeitures

attached are not favored and those claiming them must show the equities are on their side),

and we will avoid forfeitures when reasonably possible to do so. Naftalin v. John Wood

Co., 116 N.W.2d 91, 100 (Minn. 1962); Tomasko v. Cotton, 273 N.W. 628, 632 (Minn.

1937) (explaining that we try to avoid forfeiture when reasonably possible); Warren v.

Driscoll, 242 N.W. 346, 347 (Minn. 1932) (stating a forfeiture cannot be enforced when

“great injustice is done thereby and the one seeking a forfeiture is adequately protected

without”). Because section 229 reflects our reluctance to enforce forfeitures, the court of

appeals properly looked to it for guidance in resolving this case.3



3 We do not need to decide here whether to adopt section 229 for all purposes. But many other jurisdiction have applied section 229. See Varel v. Banc One Capital Partners, Inc., 55 F.3d 1016, 1018 (5th Cir. 1995) (citing to section 229 and explaining that Texas courts applying Texas law excuse non-performance of a condition precedent if the condition’s requirement will involve extreme forfeiture or penalty and its existence or occurrence forms no essential part of the exchange); In re Wade, 392 B.R. 302, 307 (E.D. Mich. 2008) (concluding that because the condition was a material part of the contract the doctrine of disproportionate forfeiture could not excuse the non-occurrence of the condition); Prince George’s Cty. v. Local Gov’t Ins. Tr., 879 A.2d 81, 96 (Md. 2005) (explaining that section 229 may be applied to prevent disproportionate forfeiture); Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415, 418 (N.Y. 1995) (discussing how section 229 may be applied to excuse the non-occurrence of a condition based on disproportionate forfeiture); Acme Markets, Inc. v. Fed. Armored Express, Inc., 648 A.2d 1218, 1221–22 (Pa. Super. Ct. 1994) (discussing how the trial court erroneously believed its analysis ended upon concluding that the condition was not met, instead of continuing in the analysis by applying section 229 to determine if the non-occurrence of the condition may be excused); Kilcullen v. Calbom & Schwab, P.S.C., 312 P.3d 60, 64 (Wash. Ct. App. 2013) (discussing how a trial court has the authority to excuse a condition where enforcing the condition would cause disproportionate forfeiture).





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While we agree with the court of appeals that section 229 provides helpful guidance

given the context presented here, we disagree with the court’s conclusion “as a matter of

law” that section 229 excuses Capistrant’s failure to comply with the condition.

Capistrant, 899 N.W.2d at 857. Section 229 consists of two prongs: (1) whether the

occurrence of the condition was a material part of the agreed exchange and

(2) a proportionality analysis that balances the risk to be protected with the amount to be

forfeited. See Restatement (Second) of Contracts § 229, cmts. b–c (explaining that the rule

applies “only where occurrence of the condition was not a material part of the agreed

exchange” and requires weighing to determine “whether the forfeiture is

‘disproportionate’ ”); see also Varel v. Banc One Capital Partners, Inc., 55 F.3d 1016,

1018 (5th Cir. 1995) (discussing how courts applying the Restatement must examine

“whether performing the condition precedent was the object of the contract or merely

incidental to it” and then weigh whether the penalty is extreme when “measured against

the purpose” of the condition). Application of the second prong (proportionality) depends

on whether the first prong (materiality) is met. Restatement (Second) of Contracts § 229

cmt. c (“The rule of this Section applies only where occurrence of the condition was not a

material part of the agreed exchange.”). In other words, if the occurrence of the condition

is a material part of the agreement, then the proportionality analysis is not applied and the

forfeiture cannot be prevented. But if the condition is not material, then the court is to

engage in the proportionality analysis.

With respect to the materiality prong, the court of appeals concluded, as a matter of

law, that the “immediate” time frame of the occurrence of the return of property was not a





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material part of the agreed exchange. Capistrant, 899 N.W.2d at 859. Lifetouch contends

that this determination was erroneous.

Lifetouch argues that the immediacy requirement was material because Lifetouch

needed to prevent “its confidential, proprietary, and trade-secret information from passing

out of its control” and the risk of that harm “begins immediately upon an employee’s

departure.” Thus, Lifetouch contends, Capistrant’s return of the property immediately

upon his departure from the company was important so that Lifetouch continued to have

exclusive control of its property and confidential information. Lifetouch points to the

testimony of its Senior Vice President of Sales who explained that the documents

Capistrant kept included information about Lifetouch’s “selling methods” and “sales

commission and profit performance.” Such information, the Vice President said, could

help Lifetouch’s competitors “target our accounts” and give competitors “a hand up in . . .

competing with [Lifetouch].”

For his part, Capistrant argues that his retention of Lifetouch’s property for a few

months was a minor, temporary delay that should be excused as immaterial. Capistrant

asserts that any delay in his return of the property was immaterial because materiality goes

to the “very root or essence of the contract” and it is impossible to find a material difference

between the return of Lifetouch’s property on the day of his retirement as compared to a

few months later. Accordingly, Capistrant argues, the court of appeals properly resolved

the materiality question as a matter of law.4



4 Capistrant additionally asserts, separate from his section 229 argument, that Minnesota case law supports his assertion that immaterial delays are excused to the extent





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We have resolved cases involving conditions precedent as a matter of law. See,

e.g., Crossroads Church, 800 N.W.2d at 615 (affirming summary judgment and

concluding that because the condition precedent was unfulfilled, the contract could not be

enforced). But the record in this case does not allow resolution of the materiality question

as matter of law. Specifically, the condition at issue—a post-employment return-of

property clause—is included in a provision that imposes ongoing noncompetition

obligations on Capistrant after the employment relationship defined by the contract has

ended.

Lifetouch cites St. Louis Produce Market v. Hughes, a case that also involved a

condition precedent that arose at the end of the parties’ employment relationship. 735 F.3d

829 (8th Cir. 2013). That contract provided that “[a]s a condition precedent to Company’s

obligations . . . and prior to Company making any additional separation payments,” the

employee agreed to return the company’s property. Id. at 831. Because the employee did

not return the company’s property, the Hughes court held that the company was relieved

of its obligation to make additional payments to the employee. Id. at 832. In so holding,



necessary to prevent forfeiture, citing Trollen v. City of Wabasha, 287 N.W.2d 645, 648 (Minn. 1979) and Jostens, Inc. v. CNA Ins./Cont’l Cas. Co., 403 N.W.2d 625, 629 (Minn. 1987), overruled in part by N. States Power Co. v. Fidelity & Cas. Co. of N.Y., 523 N.W.2d 657 (Minn. 1994). Lifetouch contends that these cases do not extend past the realm of immaterial delays in giving notice and that these principles have never been applied to substantive duties. In Jostens, we excused the failure to give timely notice of an insurance claim. 403 N.W.2d at 629. In Trollen, we excused the immaterial delay in giving a renewal notice under a lease. 287 N.W.2d at 648. We have not relied on Jostens outside of the insurance context and have not relied on Trollen outside of the real property context. We decline to import forfeiture principles from these notice cases into the context of the contractual employment relationship at issue here.





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the court rejected the employee’s argument that his nonperformance should be excused

because it was immaterial. Id. (“Hughes is correct that one party’s breach of a contract

term must be material to excuse the other party’s performance, but the failure to fulfill a

condition precedent need not.” (citation omitted)).

Hughes applies Missouri law. In addition, the case is not helpful here because the

return-of-property clause is not as clearly tied to Lifetouch’s performance as the condition

was tied to the company’s performance in Hughes. The return-of-property clause is

included in Paragraph 11, a paragraph imposing continuing non-compete and non

disclosure obligations on Capistrant for years after his retirement. Yet, as the court of

appeals recognized, the return-of-property clause “is a one-time event,” and Lifetouch

relies on the failure to comply with this one-time event—at least for a period of time—to

forfeit the entire residual commission that would otherwise be paid during the entire period

of non-disclosure and non-competition that Paragraph 11 encompasses.5 Capistrant,

899 N.W.2d at 855.

Moreover, the materiality of the return-of-property clause to the residual

commission payments is subject to conflicting inferences. It could be that the return-of



5 Relying on Harris v. Bolin, Capistrant argues that the return-of-property clause should not be enforced because it is part of a restrictive covenant. In Harris, we concluded that a forfeiture clause in a profit sharing plan and trust agreement constituted “an unlawful restraint of trade because it is not limited as to time, harm to the employer, or geographical area.” 247 N.W.2d at 603. Unlike the agreement in Harris, however, the non-compete provision in Capistrant’s agreement is limited in duration and other than prohibiting Capistrant from soliciting customers or employees of Lifetouch during the restrictive period, the provision did not restrict Capistrant’s ability to work elsewhere or for a competitor of Lifetouch. We therefore conclude that even if the return-of-property clause was part of the non-compete, it would not be overbroad based on Harris.





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property clause is material to Capistrant’s receipt of any residual commission, as Lifetouch

argues. After all, the condition is a stand-alone obligation in Paragraph 11, and in

Exhibit B, Capistrant plainly agreed that if he “breaches the provisions of Paragraph 11,”

that breach “terminate[s]” Lifetouch’s obligation to pay the residual commission.

On the other hand, and also consistent with Exhibit B, the amount of the residual

commission is determined based on Capistrant’s sales during his last year with Lifetouch.

This part of the agreement supports an inference that Capistrant’s right to the residual

commission is independent of his obligation to return Lifetouch’s property. And the fact

that the return-of-property clause is contained in the “Restriction against Competition”

paragraph reinforces the inference that the return of property was material only to

Capistrant’s noncompetition with Lifetouch. In other words, as long as Capistrant did not

disclose or use Lifetouch’s property to compete with Lifetouch, his retention of the

property for some period of time may not be material to his receipt of the residual

commission.

Given these conflicting inferences, we conclude that the materiality determination

should not be resolved as a matter of law on appeal. This is especially true in this case

because the district court did not make any findings on materiality. Accordingly, we

conclude that a remand is necessary to allow the district court to resolve the materiality

question in the first instance.

On the proportionality prong, the court of appeals also concluded, as a matter of

law, that because the forfeiture was disproportionate, Lifetouch was not relieved of its

obligation to pay the residual commission. We reverse this aspect of the court’s decision





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as well because we have concluded that a remand on the materiality issue is necessary, and

the proportionality prong is reached only after there is a conclusion on the materiality

prong.

If the district court determines that the immediate return of property under the

contract was not material, the district court then must turn to the proportionality prong of

section 229 to determine if the forfeiture was disproportionate. Comment b to section 229

explains that “[t]he rule . . . is, of necessity, a flexible one, and its application is within the

sound discretion of the court.” Restatement (Second) of Contracts § 229 cmt. b; see also

Acme Markets, Inc. v. Fed. Armored Express, Inc., 648 A.2d 1218, 1222 (Pa. Super. Ct.

1994) (remanding for an evidentiary hearing where the district court “did not consider

whether the forfeiture would be disproportionate, [or] decide if the [condition precedent]

constituted a material part of the exchange” and requiring the court on remand to “engage

in the necessary weighing analysis”).

For the foregoing reasons, we affirm the decision of the court of appeals in part, reverse that decision in part, and remand to the district court for further proceedings consistent with this opinion.