RAM Constr. Servs. of Cleveland, v. Key Constr., Inc., (US Dist. Ct., Ohio, Aug. 2022)
BACKGROUND: Masonry subcontractor RAM finished a façade masonry restoration under a subcontractor and sued general contractor Key Construction for damages, seeking compensation for additional work it completed through alleged change orders.
EVIDENCE: The contract was significantly detailed and said all price changes shall be set forth in a written change order. It stated that no such adjustments shall be made for any changes performed by RAM that have not been ordered in writing by Key. Field-authorized changes will not be considered an authorized change order until approved by Key. In a fairly routine fashion though, Key had previously used only follow-up emails after work had already been done to approve them as change orders. At some point in the middle of the project, Key had a change in personnel and the new project manager declined to approve, citing the contract Relying on the routine email approval earlier, RAM proceeded with $350,000 of additional material and demanded payment based on emails.
COURT RULING: Court finds that neither the email from Key’s project manager thanking RAM for an update informing Key of the potential need for additional materials to complete building renovation project nor parties’ course of email approvals throughout project waived requirement in their contact that RAM had to secure written change order in advance to be paid for additional work performed. Court cites contract clause that said “ failure or delay by Contractor to require performance of any provision of this Subcontract shall not be deemed a waiver of its right to enforce such provision.” Court denies recovery based on hard line of contract. GC Key wins.
BBG HOLDING CORP., v. K CAPITAL, LLC, (US Dist. Ct., Colo. July 2022)
BACKGROUND: The Seller of a $3.4M commercial office property sued the Buyer over breach of contract for failure to close on the purchase.
EVIDENCE: Buyer was an LLC led by a person that described himself as an experienced real estate professional. The contract required an initial $25,000 earnest money payment by a certain date. Buyer paid but the check bounced, as did a second check. The contract said that if earnest money had not been paid by that date, then the contract automatically terminated. However, the parties continued to work on the deal extensively. A second earnest money date arrived requiring an additional $75,000. The Buyer failed to pay it by the required date, which was also the end of a due diligence period tied to refundable earnest money, but Buyer had indicated around the same time that he was still proceeding with the deal. Ultimately, despite giving indications that he would close on the sale, the Buyer never did close, and never funded any earnest money. Seller sued demanding payment of the $100,000 of earnest money claiming the Buyer had been required to deposit both of them by dates certain.
COURT RULING: Court rules contract had indeed automatically terminated on the first earnest money date. But, the Court cited a case out of 1887 in applying a legal principle of “readoption” or revival of the contract. Citing the Buyer’s repeated actions and assertions to proceed forward, even with no earnest money paid, the Court ruled that the contract had been readopted after the automatic termination, and thus the Buyer was required to fund the earnest money. Court rules in favor of Seller and awards $100,000 on breach of contract, as it allowed for liquidated damages of the earnest money amounts since Buyer did not close. Seller wins.
TFB MIDATLANTIC 4, LLC, v. THE LOCAL CAR WASH, INC., (US Dist. Ct. Penn Oct. 2022)
BACKGROUND: Buyer of a car wash business sued a Seller claiming that the Seller misrepresented sales and profits in the business and reaffirmed the misrepresentations at closing.
EVIDENCE: The Seller was admittedly an unsophisticated person of high school education, and Buyer described them as someone that did not even understand financial sales figures. Buyers were sophisticated and experienced businessmen, with top business school education, and backgrounds in car wash businesses. The parties signed a contract to sell the car wash business for $1.2M. In contract, Seller made extensive representations and warranties as to financials, including sales, taxes, etc., and required delivery of extensive due diligence financial documents. Tax returns showed different amounts for income as compared to Seller’s financial statements. Bank accounts were of no help since they included commingled funds from other Seller businesses. Buyer claims the Seller made verbal representations that made them rely on the higher figures of income within the varying amounts across the documents.
COURT RULING: The Court noted that the conflicting tax returns and sales reports were indeed true and correct copies of the finances, and thus readily showed the discrepancy in sales. Thus, while they showed different amounts of revenue, a deep look into the documents would have easily revealed the explanation as to why, that the Seller had been including redemption transactions as part of sales, which were pre-paid by customers on earlier dates. The Court rules that the Buyer had the ability to easily discover the correct information in the accurate documents that Seller provided. Therefore, there was no misrepresentation. Seller wins.
