Rhode Island Court Issues Partial Judgment for Plaintiff in Real Estate Contract Dispute

The Rhode Island Superior Court recently issued an opinion regarding a Rhode Island real estate construction contract. Following the jury-waived trial on February 2, 2018, each side submitted post-trial memoranda to the Rhode Island Superior Court for decision. The court issued partial judgment in favor of the plaintiff on February 19, 2018.

In 2008, defendant was constructing a building in North Providence when disagreements with the contractor resulted in the contractor ceasing performance. Defendant contacted a principal of plaintiff-corporation to coordinate the completion. The principal referred the matter to a vice president, who handled ongoing negotiations with the defendant.

While there was some discussion of having the plaintiff serve as a general contractor, the defendant had already enlisted certain subcontractors, and some work had already been performed. After negotiations between the parties, the vice president suggested that the principal serve only as the construction manager. He drafted a contract. Although the defendant signed the contract, the contracted party was listed as Branting, LLC, which the court inferred that the defendant controlled for his construction. The agreement was an American Institute of Architects form contract for Construction Management dated July 15, 2008 with various exhibits attached.

In December 2008, the principal had completed its work under the contract and the defendant took occupancy of most of the building. Branting, LLC continued to owe $252,707 in December 2008. The principal continued to press for prompt payment, to no avail. By late spring, the parties were discussing a promissory note. Defendant signed the second version of the note. The revised note was signed and given to the principal on June 10, 2009.

At trial, the court received testimony from two different witnesses. The vice president testified that after meeting with the defendant, he prepared a proposal which was the basis for discussions determining the scope of work, and he appeared to have supervised the majority of the work. The court found him credible. Plaintiff’s exhibits were authenticated by his testimony and he was familiar with the documents, as well as the principal’s performance of work for the defendant. The vice president was responsive on cross-examination and consistent with his direct examination. He was clear about the limitations of his knowledge, indicating he was not sure if a certificate of occupancy had been issued for the entire building, or if various subcontractors had filed suit. His credibility remained intact.

Defendant acknowledged signing the note, and indicated that the purpose was to allow the principal to receive a disbursement from the bank. He did not dispute the note, or that the amount was due. His testimony was consistent with the vice president’s, except that he alleged that only $17,800 remained due, he claimed the promissory note “expired” on January 1, 2010, and that the principal promised to return chillers and do finish work. He did not document his payments, but the vice president was able to date each amount paid.

The court doubted that such an experienced man would sign a document indicating that he owed significant monies to circumvent bank financing, and without obtaining a separate agreement. He testified that he informed the principal that he was unsatisfied in 2008; still, he executed the note thereafter. Defendant attempted to avoid direct questions, particularly on cross-examination, continued to attempt to add other issues to his answers, and repeatedly avoided questions about whether he made any unsatisfied demands to the principal during the contract. He avoided answering a question concerning his knowledge of the personal obligation. With his inconsistency, late excuses and failure to respond to questions, the court found him lacking in credibility.

The Rhode Island Superior Court found that the debt was clearly established, as well as the execution of the promissory note. Defendant admitted signing the note and acknowledged the debt. He put forth two separate defenses for this debt. First, he claimed that he relied upon promises from the principal that additional work would be done. Second, he claimed that he was signing this document on behalf of Branting, LLC, which was a party to the construction.

The court found that defendant never proved that the payment of the debt was contingent on the principal doing additional work. In fact, he acknowledged the principal’s limited contract, and the contract time had ran. He pointed to work to be done in the basement, although the basement was excluded from the contract.

Defendant questioned whether there was consideration for the note, so as to form a binding contract. However, he acknowledged that he signed this in settlement of the debt owed by Branting, LLC. The principal, in return, agreed to wait several months for payment. Sufficient consideration was exchanged by each side.

Defendant revised the note extensively, despite that his payments were past due. He made sure the debt was not tied to his medical practice. After the note was revised, he then handwrote changes to the payment terms. Defendant signed his own name, ensuring that he would not bind his professional businesses. However, he never added Branting, LLC (the party to the Construction Management Agreement). He signed his own name and recognized that he alone was responsible for the debt. Of course, he never established that Branting, LLC or anyone else satisfied the debt. Clearly, the court held, defendant was precise and knew what he was doing.

To suggest that a party or condition exists which is not spelled out in the promissory note implicates the parol evidence rule. The parol evidence rule provides that extrinsic evidence is not admissible to vary, alter or contradict a written agreement. The basis of the rule is that a complete written agreement merges and integrates all the pertinent negotiations made prior to or at the time of execution of the contract. A document is integrated when the parties adopt the writing as a final and complete expression of the agreement. Once integrated, other expressions, oral or written, that occurred prior to or concurrent with the integrated agreement are not viable terms of the agreement.

While the defendant attempted to establish that another agreement was pending, he drafted and presented a Punch List several days after the promissory note. He failed to establish by a preponderance of evidence that there was an additional promise or any ambiguity in the note.

The court held that there was no room left for interpretation. As the Rhode Island Supreme Court held in 2017: “Pursuant to our established contract law principles, when there is an unambiguous contract and no proof of duress or the like, the terms of the contract are to be applied as written.”

In his post-trial memorandum, the defendant claimed “fraud in the inducement,” and he relied on the affirmative defense of fraud in his answer. In Rhode Island, if one is induced to enter into a contract based upon a fraudulent statement from the other party to the contract, then the party who has been fraudulently induced is not bound by the contract.

However, the Rhode Island Superior Court was convinced that the change of the date in the promissory note resulted from defendant’s insistence on rewriting the note and then revising it. The “Punch List,” so-called, was drafted after the note. It was never refuted that the Punch List contained work to be done by defendant’s subcontractors, or work to be done for the basement—all well outside the scope of the Construction Management Agreement which the promissory note was to ensure payment of. Neither party called the principal to testify nor was it ever established that the Plaintiff or the principal made any misrepresentation to the defendant.

The court explained that liability was also established by the defendant’s failure to respond to the request for admissions issued in July 2015. By this, the defendant admitted that $21,048.95 was due. It is appropriate to apply interest in a breach of contract case or a breach of a promissory note from the date the debt is past due. The federal courts have interpreted this accrual date as the date on which plaintiff began to suffer damages, or when the money was due. The date the money was due was January 1, 2010. Prejudgment interest shall run from that date.

The court entered partial judgment in favor of the plaintiff against the defendant for $20,707.08, plus prejudgment interest at the rate of 12% per annum from January 1, 2010. The court gave each party the opportunity to submit memoranda on this issue and request a hearing. If they failed to do so, this issue and the entire case would be deemed submitted for decision.

Bilodeau Capalbo, LLC’s experienced real estate law attorneys will zealously fight for Rhode Island residents in their real estate cases. Call (401) 400-8182 to schedule your complimentary consultation today.

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