Ambiguity is Not Your Friend

Construction and Procurement Law News

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Initiating a project without a robust contract to protect your interests can be fraught with peril, as the Louisiana Second Circuit Court of Appeals recently reminded us. In Redstonev. Sipes, the appellate court rendered an opinion that should serve as a reminder to contractors to carefully and thoroughly draft their contracts prior to commencing new projects.

In Redstone, the court interpreted an ambiguous contract to find that the contractor had breached its agreement with the owner and was liable for the owner’s repair costs. The project involved a small office renovation, and the contract consisted of a one-page, handwritten, itemized invoice that merely listed the components of the work. One of the project components read “plumber (bath) labor.” Due to “widespread substandard work,” the owner terminated the contract while the contractor was on vacation. The owner hired another contractor to repair and finish the project, which included building out the bathroom. The owner filed suit to recover his repair and finishing costs.

The contractor alleged wrongful termination and argued that the bathroom renovation was not part of the original contract and that he thus had no liability for that portion of the work. The trial court found that the contract was ambiguous as to the bathroom scope and ruled in the owner’s favor, awarding him $28,000 for project completion costs. The contractor appealed.

The Louisiana appeals court affirmed the trial court’s award, agreeing that the contract was ambiguous and ruling in the owner’s favor. The court reasoned that because “there was no explanation or description of what the project entailed, including any allocation of expenses relative to the bathroom renovation” the contract could be interpreted to include the bathroom scope. The court explained that “[w]hen the parties’ intent cannot be adequately discerned from the contract itself, the court may then consider evidence as to the facts and circumstances surrounding the parties at the time the contract was made.” The owner testified at trial that there was an oral modification to the contract to encompass the bathroom renovation. The trial court found this testimony persuasive and the Second Circuit affirmed.

The court also found that the contractor’s allegation of wrongful termination was without merit. The contract provided no guidance in this regard, and testimony showed that the work was faulty and far from completion, leaving the owner without any “other real option than to seek other competent workers to remedy and complete the project.”

The Louisiana appeals court’s decision should serve as a warning to contractors when entering into a new project. This case may have turned out differently if the contractor had taken the time to execute a detailed contract with clear terms. If the time and energy had been spent at the beginning to alleviate any ambiguity, the court would have had no choice but to rely upon the parties’ contractual terms. The contractor should not only have spelled out the scope of the work with specificity, but any and all changes to scope should have been set forth in writing.

Further, parties should explicitly set forth provisions for termination. While some states have found a common law duty to provide notice of deficient work and an opportunity to cure prior to termination, many states will only find such an obligation when it is set forth in the contract. In this case, if the contractor had taken the time to include such terms, the owner would not have been able to terminate and hire repair contractors without first providing him notice and an opportunity to cure the substandard work.

This article, "Ambiguity is Not Your Friend" was published in the Bradley Construction and Procurement Law Newsletter for the second quarter of 2020.