Category: Contracts

Court Awards Realtor Commission and Attorney’s Fees Despite Breach of Purchase Agreement

01.26.2021

The owner of a strip mall retained a realtor to list available property in its shopping center. A purchase agreement was secured and set a deadline to complete the sale. When the purchaser did not complete the sale, the realtor sued the purchaser for lost commission. See Beau Box Commercial Real Estate, LLC v. Pennywise Solutions, Inc., 2019-0114 (La. App. 1 Cir. 10/23/19), 289 So. 3d 600.  The case raised the issue of whether the realtor was a third-party beneficiary to the purchase agreement.

After the sale fell through, the realtor filed suit against the purchaser to recover commission for the sale of the property, attorney’s fees, and other costs. In response, the purchaser admitted to the breach of the purchase agreement but argued that the listing agent had no right to recover because it was not a party to the purchase agreement. The trial court disagreed and granted summary judgment in the realtor’s favor. The trial court held that the purchase agreement established a “stipulation pour autrui”(third-party benefit) for the realtor.

The court acknowledged that agents generally are not parties to purchase agreements. However, the language of the specific purchase agreement conferred a benefit in favor of both agents because it explicitly stated that a party defaulting on the purchase agreement “shall be liable” for realtor’s commissions, attorney’s fees, and costs incurred in the enforcement of the contract.

The court also rejected the purchaser’s second argument that it had to be “placed in default” before any cause of action could arise. In response, court found that, when a term for performance is fixed in a contract, the arrival of that term automatically puts the breaching party in default.

The result in Beau Box may be limited to its own facts. However, realtors and parties should now pay closer attention to the terms of purchase agreement, which can create benefits for non-parties to the contract.

Marty Golden has been practicing law based in Baton Rouge, Louisiana for over thirty years, concentrating in civil litigation primarily involving injuries, property damage, insurance coverage, and contract disputes. Much of his practice is defending and advising real estate agents in suits by property buyers and sellers, but Marty also defends other professionals, insurance companies, manufacturers, and business owners. Marty has a special interest in all things procedural, because they are the rules of the road for litigators and knowing them better than his opponent gives him a leg up in court.

Supreme Court Rules Against Broad Application of Indemnity Provision in Engineer’s Contract

06.03.2020

The Supreme Court ruling in Couvillion Group, LLC v. Plaquemines Parish Government, 2020 -00074 (La. 4/27/20) is a reminder that an indemnity claim must be sufficiently related to the principal demand and that contract indemnity provisions are to be strictly construed.

In Couvillion, the general contractor sued the owner of a public works port project for contract delay damages resulting from a cease work order issued to allow redesign of a fuel tank platform. When the contractor submitted its delay claim, the owner requested that its project engineer review it and make recommendations. The engineer recommended payment of a little over $1 million dollars. When the owner refused to pay, the contractor sued. In response, the owner filed a third-party demand against the engineer alleging that its recommendation was erroneous and excessive and that, if it was bound by the engineer’s recommendation, then the engineer must indemnify the owner.

On behalf of the engineer, Keogh Cox attorneys argued that the engineer should not be required to reimburse the owner for any delay costs and asked for dismissal through an exception of no cause of action. Code of Procedure Article 1111 provides that a defendant in a principal action may bring in any person who may be liable to him for all or part of the principal demand. Here, that was not the situation. The engineer was not liable to the owner for any part of the contractor’s delay claim because the engineer did not cause the delay. The delay damages were incurred before the engineer made a recommendation for payment. The events giving rise to the two claims were separate and distinct: the main demand arose from the project delay and the third- party demand arose from the engineer’s recommendation of the claim amount. The Court commented that the principal claim against the owner for delay damages was too attenuated from the owner’s claim against the engineer, thus the third-party demand was improper.

The owner also relied on the indemnity provision in the engineer’s contract that required the engineer to indemnify the owner against any and all claims for personal injury or “damages to property” that may arise from its services. The Court held that the plain meaning of the term did not include the economic-only losses related to the subject delay claim. The Court further reasoned that indemnity agreements are to be strictly construed, rejecting the owner’s broader interpretation.

La. Supreme Court Rules 10-year Contract Prescription Applies to 1st Party Claims Against Insurer

03.23.2020

In a first-party action obtained by assignment for excess liability against an insurer, the Louisiana Supreme Court in Smith v. Citadel Insurance,19-00052 (La. 10/22/19) ruled that the claim against the carrier is subject to the 10-year contract prescription period under La. law, stating:

“For the above reasons, we hold an insurer’s duty of good faith owed to its insured under La. R.S. 22:1973 does not exist separate and apart from an insurer’s contractual obligations. The duty of good faith is codified in La. R.S. 22:1973, but this duty is an outgrowth of the contractual and fiduciary relationship between the insured and the insurer, and the duty of good faith and fair dealing emanates from the contract between the parties. Thus, first-party bad faith claims against an insurer are governed by the ten-year prescriptive period set forth in La. C.C. art. 3499. Consequently, Ms. Smith’s first-party bad faith claim against GoAuto, brought pursuant to an assignment of rights from the insured, was subject to a 10-year prescriptive period and is not prescribed.”

The concurring justice noted that it was not necessary to engage in the protracted discussion concerning the duties of insurers relative to first-party claims. Nevertheless, the court offered an in-depth discussion of these duties.

Construction Law: The Limits of Anti-Indemnity in Louisiana

05.01.2018

Louisiana’s anti-indemnity statute applicable to construction contracts, R.S. 9:2780.1, became law in 2011. The statute renders unenforceable any provision in, or collateral to, a construction contract that purports to indemnify or hold harmless a person from liability for its own negligence, or has the effect of doing so. Since the law’s passage, few court decisions have interpreted its seemingly broad language and many questions remain as to the law’s full impact.

The obvious intent of the anti-indemnity law is to avoid shifting liability away from a party at fault to another person. To this end, the language in the statute nullifies any agreement that has “the effect of holding the person at fault harmless.” But what about “limit of liability” provisions? Arguably, such provisions have the effect of holding harmless the party at fault. Does a limit of liability provision, otherwise valid and enforceable under Louisiana law, run afoul of the anti-indemnity statute? After all, those parties with superior bargaining power in construction contracts will seek to insulate themselves from liability to the fullest extent allowed by law, and will look for alternatives to the indemnity provisions that now expressly violate public policy.

One court recently held that R.S. 9:2780.1 does not prohibit a limit of liability provision in a construction contract. In Patriot Contracting, LLC v. Star Insurance Company, (E.D. La. 3/01/2018), the construction contract contained a provision that excluded liability of the architect for good faith decisions made during contract administration. The plaintiff/contractor alleged that the architect was negligent in its contract administration duties and caused it to suffer economic loss. The court dismissed the claim, rejecting the contractor’s argument that the provision violated the anti-indemnity law.

The Patriot court explained that the statute prohibits an indemnity agreement, i.e., where one party agrees to reimburse a second party for damages for which the second party becomes liable to a third party. However, the anti-indemnity law did not impact the provision that excluded the contractor’s right to recover from the architect. Thus, at at least according to one court, parties in construction contracts are still free to include limit of liability provisions.

 

Mary Anne Wolf is an engineer/attorney with a construction background who represents design professionals, contractors, and others in construction litigation. She also gives seminars on the subject. She enjoys travel, yoga, and encouraging her husband in his gardening and cooking endeavors.

Did You Just Create a Contract?

03.27.2018

You tell a contractor you want him to repair a problem. Before leaving your house, the contractor says he will “look into it” and “get back to you.” Have you just made an oral contract for the repair? The answer to this question is no, according to Hodson v. Daron Cavaness Builder, Inc., 2017-1235 (La. App. 1 Cir. 2/27/18), a recent First Circuit Decision.

In Louisiana, an oral contract for over $500 must be proved by at least one witness and other corroborating circumstances. See La. C.C. art. 1846. The person trying to enforce the oral contract may serve as her own witness to meet this standard, but evidence of the corroborating circumstances must come from some other source. In Hodson, the plaintiff observed cracks in her floor and called a contractor to examine the problem. The plaintiff made it clear she wanted the contractor to repair the floor. While the contractor denied promising to fix the floor, he admitted that he promised to “look into it and get back with her in a week or two.” Despite his promise, he never called the homeowner back.

The plaintiff filed suit and claimed she was entitled to recover damages for the cost of repairing her floor. The Trial Court found the contractor’s admissions to be enough “corroborating evidence” to establish an oral contract for the repair. However, the First Circuit found the parties did not make an oral contract to repair the floor. Instead, the contractor only agreed to “look into it.” According to the Hodson Court, a “broken promise to look into a situation does not equate to an oral agreement to repair.”

The Hodson decision shows that while Louisiana law allows parties to create oral contracts, it can be difficult to prove that a contract was actually formed or to define the details of the agreement. If you put the agreement in writing, you won’t be left wondering whether you just created a contract.

 

Reynolds LeBlanc is a partner at Keogh Cox. His practice areas include commercial litigation, personal injury claims, appeals, and other matters. Reynolds is a former teacher, who in his free time plays music and perpetually talks himself into training for his next marathon.

RENTER BEWARE: Hidden Risks in Lease Agreements

09.15.2017

With home prices soaring in today’s housing market, many people choose to rent rather than buy. Factored into their decision is the style, the square footage, the location, and other criteria, but few renters consider one risk that comes with many, if not most, leases. Many renters are exposed to personal liability for accidents occurring on the premises, and they don’t even know it.

A lease is executed between the renter/tenant (the “lessee”) and the property owner (the “lessor”). By law, the lease imposes general obligations on both parties.

The lessee (renter) is bound:

1. to pay the rent in accordance with the agreed terms;

2. to use the thing as a prudent administrator and in accordance with the purpose of which it was leased; and,

3. to return the thing at the end of the lease in a condition that is the same as it was when the thing was delivered to him, except for normal wear and tear. LSA C.C. Art. 2683

The lessor (property owner) is bound:

1. to deliver the thing to the lessee;

2. to maintain the thing in a condition suitable for the purpose of which is was leased; and,

3. to protect the lessee’s peaceful possession for the duration of the lease.” LSA C.C. Art. 2682.

These general obligations are typically expanded by terms in the lease because the lessee and lessor are “free to contract for any object that is lawful, possible and determined or determinable.” Family Care Services, Inc. v. Owens, 46 So.3d 234 (La. App. 2 Cir. 8/11/10). This “freedom of contract” allows the parties to construct their own bargains, shifting certain rights and obligations. In many commercial and residential lease agreements, this shifting includes a transfer of the liability for vices or defects on or in the leased premises.

Although the lessor warrants that the leased premises is free of vices or defects, Louisiana law allows the lessee to assume responsibility for the condition of the leased premises under LA. R.S. 9:3221. Often, lessees assume that the lessor, as the owner of the premises, will be responsible if there is an accident. However, cases such as Jamison v. D’Amico, 955 So.2d 161 (La. App. 4th Cir. 3/14/07) demonstrate that the owner may be entirely free of fault even though they owned a defective premises which caused an accident. In Jamison, a worker was injured when a floor collapsed beneath her. There was insufficient evidence that the owner was aware of the defective floor. Because the lease contained a clause shifting responsibility, the owner was under no duty to inspect the premises and was dismissed from the case.

A lesson to all renters: read and understand the provisions in your lease. Even if you like the colors and the location, you should also like the lease contract before you sign it.

Risky Business : “Foreseeable” Damages in Commercial Transactions

01.19.2017

Intuitively, contracting parties in commercial transactions understand that legal consequences follow a breach of contract: If a party fails to deliver a product as promised, the breaching party can be liable for the cost to correct the breach; but what is that cost?

Say, for example, a business cancels an order to provide parts to a long-time customer because the relationship has gone sour. Legally, the liability for that breach of contract may extend beyond the cost of the order. A breaching party is liable for damages that are a direct consequence of the failure to perform and that were foreseeable at the time the contract was made, which may include lost profit. If the breach was intentional or malicious, the party’s liability may extend even to direct damages that were not foreseeable.

The business that cancelled the order now faces a jury’s decision to identify the direct and foreseeable losses, a decision that, by its nature, is vague. However, the law imposes a limit on the jury’s prerogative to decide the damages. Even for a bad faith breach of contract, liability arises only for the direct, immediate consequences of the breach and there should be no liability for damages determined to be remote, indirect, or that have no necessary relation to the breach.

In a recent case, a jury found that a defendant boat engine manufacturer breached its contract with plaintiff boat manufacturer by cancelling a purchase order for engines, and further, that the engine manufacturer was in bad faith. The jury awarded $1.8 million in foreseeable lost revenues and $1.3 million in unforeseeable lost profits. The trial court threw out the “unforeseen” portion of the award because it was not a direct damage, and emphasized that a breaching party does not “become the insurer for all misfortunes that may arise from the breach.”

The boat manufacturer had argued that the cash flow expected from the sale of the boats rendered engine-less by the breach would have been invested in more personnel and capital to grow its northwest division. But, because of depleted cash flow from lost sales, that opportunity was lost. The court found, as a matter of law, that this loss was not a direct consequence of the breach, and thus, regardless of the bad faith, was not a recoverable contract damage. Simply, loss of cash flow in one part of the business that had a ripple effect in a separate division was too indirect to be a recoverable damage. See  Marine Power Holding, LLC v. Malibu Boats, LLC, 2016 WL 7241560 (E.D. La. 12/15/2016).

By contrast, courts have found that loss of cash flow is recoverable where directly related to the damages suffered, such as where breach of a contract to deliver chickens to a chicken farmer caused the forced sale of the chicken farm. See Volentine v. Raeford Farms of La.,  50-698 (La.App. 2 Cir. 8/15/16), 201 So.3d 325.

Failure to perform on a contract exposes a business to more than it may realize. Understanding this risk allows for smarter decisions before the breach.

Going Once, Going Twice … A New Alternative to Design-Bid-Build Contracts

11.13.2014

The 2014 Legislative Session brought new possibilities for large construction projects under the Public Contract Law. Generally, a public entity is required to separately hire a design professional to design the project, and let the project out for public bid for the construction work. “Design-build” contracts, in which the public owner contracts with one entity for the design and construction of the facility, are prohibited under Public Contract Law.  However, the Legislature has now given public entities another option under the Public Bid Law: Construction Management at Risk Delivery Method (CMAR).

What’s the Delay? Contractor Delay Damages Under the Public Bid Law

11.03.2014

Generally, a provision in a construction contract for private work limiting the contractor’s right to recover additional costs arising from delays outside of the contractor’s control may be enforceable. However, under the Public Bid Law, such a provision has been found to be against public policy. La. R.S. 38:2216 prohibits any public contract provision that purports to waive, release or extinguish the rights of a contractor to recover delay damages if the delay was caused in whole or in part by the acts or omission of the public entity.

Do Not Pass Go

09.16.2014

The Louisiana Supreme Court recently considered the recoverability of indirect economic damages caused by negligent injury to property of others in MAW Enterprises, LLC, et al v. City of Marksville, et al. The Court found the defendant’s duty did not include liability for damages resulting from negligent interference of a contract, and dismissed the case.

Fraud Just Got More Expensive – Equity as a Factor in Attorney Fee Awards

11.15.2013

The Louisiana Supreme Court recently held that the New Home Warranty Act (“NHWA”) is not the exclusive remedy for a purchaser of a new home where the builder fails to disclose known defects in the Residential Property Disclosure Act (“RPDA”). Stutts v. Melton, 2013-0557, — So.2d. —-. The Court also upheld an award of damages and attorney fees for fraud victims who elect not to seek rescission of a sales contract despite no Civil Code article expressly allowing for attorney fees in such instances.