Short and (Not) Sweet: The Bitter Aftertaste of Ambiguous Contracts

Short and (Not) Sweet: The Bitter Aftertaste of Ambiguous Contracts

Redstone v. Sipes[1]

On April 22, 2020, the Louisiana Second Circuit Court of Appeal (“the Second Circuit”) held a contractor liable to the owner for his defective performance as well as project completion costs after his termination. The ruling stemmed from a contract that included ambiguous provisions and terms. While consistent with other Louisiana court holdings, this holding should serve as a reminder that contractors should carefully draft their construction contracts.

Background

In this case, Redstone sought to remodel the interior of his building to create a conference room, two offices, a hallway, and a bathroom. As such, he hired Sipes to perform the work. Sipes drafted the contract, but it merely listed general items and the contract price of $25,000. Redstone paid the contract price as well as an additional $3,000 for Sipes to install and construct a bathroom. However, due to extremely defective work and substantial delays, Redstone terminated Sipes and hired new contractors to complete the renovation.

After Redstone sent a demand letter to Sipes requesting payment for a portion of the damages incurred from hiring new contractors, Redstone filed suit against Sipes. The suit included three causes of action: (1) breach of contract, (2) negligent performance of the renovation work, and (3) delayed performance of the work. Sipes filed an answer, admitting the existence of the contract, but asserted a defense of improper termination since he had completed 90% of the project.

Trial Court

During trial, the parties provided conflicting testimony on the scope of the contract and the responsibilities of the parties. Redstone testified that pursuant to the contract, Sipes agreed to renovate the bathroom. Redstone also testified that he paid an additional $3,000 to Sipes to perform plumbing work. Conversely, Sipes testified that the contract listed “plumber (bath) labor” as expenses covered by Redstone; and that the $3,000 payment was simply to prepare the room to install the plumbing — not the plumbing installation itself.

The trial court found the contract to be ambiguous in part and ruled in Redstone’s favor. As such, the trial court awarded $28,000 to Redstone as well as the additional expenses he incurred to complete the project. Sipes appealed to the Second Circuit.

Appellate Court

The Second Circuit affirmed the decision against Sipes. First, the Second Circuit agreed that the contract was ambiguous. Under Louisiana law, a contract is ambiguous when:

  1. The contract lacks a provision on that issue;
  2. The contract terms are susceptible to more than one interpretation;
  3. There is uncertainty or ambiguity as to its provisions; or
  4. The intent of the parties cannot be ascertained from the language employed.[2]

Additionally, while a doubtful provision must be interpreted in light of the nature of the contract,[3] a doubtful provision that otherwise cannot be resolved must be interpreted against the party who drafted the contract.[4]

Here, the Second Circuit found the contract to be ambiguous because there was no explanation or description of what the project entailed, including any allocation of expenses relative to the bathroom renovation. In addition, the trial court testimony proved that while the initial contract intended to remodel the interior of the building, the additional $3,000 payment constituted an oral modification to the contract. Due to this alteration, Sipes was responsible for work performed on the bathroom.

Finally, the Second Circuit also agreed that Redstone was entitled to damages for completing the project with a second contractor. While Sipes argued that the project was nearly complete, the Second Circuit rejected this defense. Not only did the trial court evidence support the presence of substantial defective work, but also that no end date for the contract was ascertainable. This evidence — coupled with Redstone’s detailed exhibits of the costs to complete the project — supported the trial court’s finding that Redstone mitigated his damages and was therefore entitled to recovery. As such, the Second Circuit affirmed the trial court ruling. 

What to Remember

While the contractor’s workmanship is the vital ingredient to a project’s success, his contract should have an easily understandable framework that thoroughly describes the scope of the work. When a contract does not contain the bitter taste of ambiguity, the parties will have a mutual and consistent understanding of their contractual obligations. In addition, a contract free of ambiguous provisions will be enforced as written. In such an instance, the contract will reflect the true intent of the parties, and external evidence will not be allowed to alter the contract. Therefore, this case is a stiff reminder to contractors – do not cut corners during the contract drafting stage.

[1]   Redstone v. Sipes, 53,416, 2020 WL 1933216 (La. App. 2 Cir. 4/22/20).

[2]   La. Civ. Code art. 1848; Campbell v. Melton, 2001-2578 (La. 5/14/02), 817 So.2d 69, 75; Miller v. Miller, 44,163 (La. App. 2 Cir. 1/14/09), 1 So.3d 815, 818.

[3]   La. Civ. Code art. 2053.

[4]   La. Civ. Code art. 2056.