Whoops I May Have Renovated the Wrong Property....

Ravi Prasad received notice of a public auction from the County. Ravi, a retired chemical engineer who was in the real estate flipping business, was interested in Parcel 8-C, identified as 17211 Shands Road. A photograph on the property card showed that the lot was improved with a residence.

The residence shown, however, was owned by William and Elnora Washington. The Washington's house is located two lots north of Parcel 8-C. The street address for Will and Elnora’s house is 17201 Shands Road, but was incorrectly marked on the front of the house and mailbox as 17211 Shands.

William testified that 17211 was the original address when it was owned by his mother. When Will purchased it in 2004, he learned the address had been changed to 17201, but he never altered the fourth digit on the house or mailbox.

The Washington house had been vacant at all times relevant to this case.

Ravi viewed the Washington house prior to the tax sale, thinking it was Parcel 8-C. Although Ravi obtained a County tax map showing the physical location of both Parcel 8-C and the Washington property, Ravi drove instead to the Washington home for his inspection.

Ravi’s $11,000 bid for Parcel 8-C was accepted, and soon after Ravi began renovating Will and Elnora’s house instead of Parcel 8-C. He expended more than $23,500 before he received a letter from an attorney engaged by the Washingtons, suggesting he might cease his efforts to improve a property he did not own.

Will and Elnora Washington refused to pay Ravi Prasad for the work completed, so Ravi sued M/M Washington for damages.

Ravi claimed at trial that Will and Elnora had been unjustly enriched due to Ravi’s efforts. And, if the Washingtons had not displayed the wrong address on their house, “upon which both he and the County ‘obviously’ relied,” then none of this would have occurred.

Ravi further argued that although he did not conduct a title search, obtain a title commitment or title policy, if he had done so the result would have been the same since a title analysis would not have revealed that Ravi had inspected the wrong property and was confused as to the exact location of Parcel 8-C.

The Washingtons asserted that Ravi was not entitled to damages since the Washingtons did not know their property was being renovated. Recall that the property was vacant at the time.

The trial court found that it would be inequitable to allow the Washingtons to receive the value of Ravi’s renovations, regardless of the Washingtons’ testimony that their property was vacant. And that they did not gain knowledge of the repairs until two months after commencement. And at that time they promptly engaged an attorney to advise Ravi to stop his efforts.

The trial court entered Judgment for Ravi in the amount he expended on the house – $23,508 – and also imposed a lien on the Washingtons’ property for that amount.

Will and Elnora appealed.

The Supreme Court took a different approach, finding that Ravi had at least imputed knowledge (we call this constructive notice) that he was renovating property he did not own. Ravi’s foreclosure Deed clearly identified Parcel 8-C. Ravi had no legal right to rely on mailbox numbers and similar. Further, a property tax map in Ravi’s possession identified both Parcel 8-C and the Washingtons’ property, located a bit north of 8-C.

The trial court’s Judgment was reversed. William and Elnora Washington win and they can keep Ravi’s improvements without a duty to pay for them. See Washington v. Prasad; Record No. 151783; Supreme Court of Virginia; October 27, 2016: http://scholar.google.com/scholar_case?case=10093304851191612435&q=washington+vs.+prasad&hl=en&as_sdt=6,44.

Lessons learned:

1.      Foreclosures are inherently risky business. My savvy foreclosure buyer-clients will not bid more than 50% of fair market value, due to bumps in the road like this one.

2.      Mailbox numbers and addresses painted on curbs, or nailed to the fences and front and back walls, are not binding for this type of property identification purpose. County Maps and Plats should have been more carefully reviewed.

3.      Although there wasn’t much text about this in the Supreme Court opinion, I believe a different outcome would have been reached had the Washingtons known that someone was working hard to improve their property. Perhaps this is one of those rare moments where ignorance is bliss. But I also believe that Will and Elnora expended far more than the value of the improvements to defend and appeal the case to the Supreme Court.

 

                                                                                    Stuart A. Lautin, Esq.

 

 

                  Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

 

 

 

 

Quantum Meruit [To know it is to love it]

Quantum meruit is of course a Latin phrase. It means “what one has earned.” In the context of contract law, it used something like “reasonable value of services."

Northeast Independent School District (San Antonio) hired STR Constructors to renovate a middle school. In turn, STR engaged Newman Tile as a subcontractor, to install about 3500 square feet of tile in the kitchen.

Problems arose between STR and Newman right away. STR demanded that Newman use epoxy grout to install the quarry tile. Newman insisted that its bid excluded epoxy grout. Under protest and claiming that epoxy grout and the added labor necessary to use it were unnecessary, Newman complied with STR’s instructions.

And then Newman submitted a change order seeking recovery of its added costs.

And then STR refused to pay it.

And then Newman sued STR for quantum meruit and breach of contract. Newman won in trial court; STR appealed.

We don’t get many cases involving quantum meruit, probably because appellate courts have told us for years that the remedy of being paid “the value of your services” is inapplicable when the parties have signed a contract. As STR and Newman did in this case.

Regardless, Newman claimed that it was entitled to quantum meruit damages – the value of its services – because STR and ultimately Northeast ISD accepted and retained the benefits of Newman’s work.

The evidence submitted by Newman was that it provided labor and materials for STR’s benefit, including additional mortar bed on the kitchen floor, blue bullnose tile as a finishing trim on a tile wall, epoxy grout, restocking fees, and weekend and overtime work. Newman submitted five Change Orders and Payment Requests aggregating approximately $25,000 for such labor and materials.

The Appeals Court determined that, if the trial court judgment is not upheld, STR would be unjustly enriched while Newman would be unfairly penalized. The Court then reviewed the [relatively] small claims submitted by Newman and compared to the overall contract price of $5.2 million paid by Northeast ISD.

And just to seal the deal, the Court concluded with “STR now seeks to escape liability on a contract it drafted by claiming that its behavior should be ignored because a strict construction of the contract imposes no liability on it.” In English I read that to mean that “STR had an airtight contract which Newman breached, but we are not going to let STR beat up a small subcontractor.”

The Appeals Court then ends with “STR, by [its] course of conduct, has violated the reasonable expectations and values that permeate business transactions.” Yes that is exactly what it says on the 8^th page. Serious.

Newman wins, again. STR loses, again. And good news for us lawyers – we have a new case on quantum meruit!

See STR Constructors Ltd v. Newman Tile, Inc.; 08-10-00210-CV; Texas Court of Appeals 8^th District, El Paso; February 20, 2013.

Lessons learned:

1.      The theory of “quantum meruit” still lives in Texas.

2.      Although not part of this case, you should know that TREC laws and rules prohibit real estate commission claims based on quantum meruit. In Texas you need a written commission agreement to be lawfully entitled to receive payment.

3.      Little guys confronting “The Machine” don’t always get beat up in Court. Thankfully.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.