Suit Against Home Inspector Thrown Out Based on Contractual Liquidated Damages Clause and Disclaimers

In Boshyan v. Private I. Home Inspections, Inc., 2014 IL App (1st) 287715, the First District examines the interplay between a liquidated damages provision and limitation of liability language in a written home inspection contract.

The plaintiff home buyer sued his home inspector for breach of contract after the plaintiff encountered property defects after he moved into a house.  The trial court granted the  inspector’s Section 2-619 motion to dismiss based on the exculpatory contract language.

Held: affirmed

Rules/Reasoning:

The inspection contract was profuse with disclaimers.  Itlimited the plaintiff to damages of $500, it excluded latent defects from the inspection and also disclaimed any express or implied warranties.

Affirming dismissal of the home buyer’s suit, the Court held that the inspection contract’s $500 damage cap was a valid liquidated damages clause.  The Court defined a liquidated damages provision as one that specifies a method of determining damages in the event a contract is breached and that provides an agreed-upon measure of damages upon breach.

The court distinguished a liquidated damage clause from an exculpatory clause: the latter completely insulates the defaulting party’s liability.  ¶¶ 23-27.

The Court found the liquidated damages term unambiguous and contract manifested the parties’ intent to pre-calibrate damages at the contract’s outset.  ¶ 27.

The Court went further.  It held that even if the $500 damage cap wasn’t a valid liquidated damages clause (e.g. it was a penalty to secure performance or was optional in nature*), the term would still be enforced as an exculpatory clause.

Exculpatory clauses seek to strike a balance between freedom of contract principles on the one hand and any public policy considerations which would restrain that freedom on the other hand.

In the area of “nonregulated” contracts (e.g. contracts involving private parties), the Court permits competent parties to allocate business risks as they see fit.  Here, since there was no special relationship between the parties – the home buyer and inspector were on an equal bargaining footing – no public policy of Illinois was violated by the contract term limiting plaintiff’s damages to $500.

Take-away: Freedom of contract principles will trump public policy considerations where the contracting parties are on an equal contractual footing in terms of education and socio-economic status and there is no fraud or over-reaching by one of the parties.

Home buyers should be aware that home inspection agreements are often laden with either or both (like the one here) disclaimer language and liquidated damages terms.  They should be especially cognizant of damage caps in written home inspection agreements.  This case also stands for proposition that a technical violation of a business licensing statute won’t necessarily void a contract involving the violating business.

—————————————————-

* For Detailed Discussion of Liquidated Damages Clause, see  “Holdback Provision in Real Estate Contract Fails Liquidated Damages Test”, Chicago Daily Law Bulletin, Commercial Litigation Column, March 10, 2014 http://www.slideshare.net/slideshow/embed_code/32194241

Stored Communications Act Claim Survives Summary Judgment In Social Media Account Hijacking Case

Maremont v. Fredman, 2014 WL 812401 (N.D.Ill. 2014) examines an employee’s claims under the Stored Communications Act (18 U.S.C. § 2701)(the “SCA”) where the employer accessed the employee’s social media accounts     that she used for both personal and business purposes.

The Court found that plaintiff submitted evidence to raise triable fact questions on each element of the Complaint’s SCA count. 

The SCA aims to deter computer hacking and gives a private right of action to someone whose private electronic information is intentionally breached. 

The SCA plaintiff must establish that the defendant either (a) intentionally accessed the plaintiff’s private computer communication or (b) intentionally exceeded authorized access and obtained, altered or prevented authorized access to plaintiff’s private communications. *6.

For their part, the Defendants argued that Plaintiff voluntarily provided her Twitter and Facebook password information so that Defendants could continue marketing their company from plaintiff’s pages. 

Plaintiff disputed this: she claimed that she kept her Twitter and Facebook passwords in a locked electronic folder on Defendants’ server.  This fact dispute led the court to deny summary judgment on the SCA claim.

Another disputed fact question concerned plaintiff’s damages.  The SCA provides for both actual damages and minimum statutory damages of $1,000.  The case law is in flux as to whether actual damages are required before a plaintiff can recover the statutory minimum damages.  The Court looked to other jurisdictions to find that an SCA plaintiff  does not have to first prove actual damages (e.g. medical bills, lost wages, pain/suffering, etc.) before she can recover statutory damages.

But the Court still found plaintiff raised a disputed and triable fact question on actual damages.  Plaintiff, her husband and her father all testified to plaintiff’s acute mental anguish in the wake of Defendants’ unauthorized Tweeting and Facebooking barrage.  Under Federal Rule of Evidence 701 – witness observations of the Plaintiff’s mental distress was competent “lay opinion testimony”, based on the witnesses’ personal observations.  *7.

Take-aways: Clearly a pro-employee ruling; at least on the SCA claim.  The plaintiff not only stored her computer information on her employer’s computer server, but several witnesses for defendants also claimed that plaintiff willingly gave out her account passwords so that defendants could use the accounts as a marketing platform. 

Still, the Court found that plaintiff’s privacy and commercial interest (the Court found that plaintiff could enhance her reputation in the design community via social media) in her Twitter and Facebook accounts trumped the employers’ right to access those accounts. 

Construction Contract Ambiguity: Court Considers Expert Testimony To Clarify Contract Terms

imageA construction site injury provides the setting for the First District’s recent application of Illinois contract interpretation rules to the question of when and how contracting parties’ prior course of dealing can inform the court’s analysis of an ambiguous written agreement.

In Gomez v. Bovis Lend Lease, 2013 IL App (1st) 130568, the plaintiff plumbing subcontractor was injured when he fell through a floor gap known in the trade as an “infill” while working on the construction of the 102-story Trump Tower in Chicago.  He sued the project manager and general contractor who in turn, filed a third-party complaint against the concrete forms subcontractor for breach of a written concrete flooring contract.

The flooring contract required the subcontractor to provide “designs, drawings and technical support” for the concrete forming systems. The parties (the general contractor and the concrete subcontractor) had worked together several times in the past.  In these prior projects, the subcontractor never provided any infill design services or technical support to the general contractor.  The trial court granted the subcontractor’s motion for summary judgment on the basis that the subcontractor wasn’t obligated to provide support for the infill areas.

Held: Affirmed

In siding with the subcontractor, the First District applied several key contract interpretation and enforceability principles:

–  The court must give effect to the parties’ intentions when interpreting a contract;

– The best indication of the parties’ intent is the plain meaning of the contract’s language which must be interpreted in light of the contract as a whole;

 – A contract is ambiguous where it’s subject to more than one reasonable interpretation;

 – If a contract’s ambiguous, extrinsic evidence may be used to interpret it;

 – If the contract is unambiguous, extrinsic evidence may not be used to interpret it;

–  Mere disagreement over contract terms doesn’t equate to ambiguity;

– If a contract contains an integration clause, a court may not use extrinsic evidence to interpret the contract;

– But if the contract’s ambiguous, the integration clause will not preclude consideration of extrinsic evidence;

Gomez, ¶¶ 13-14, 25-26.

The Court found the subject contract ambiguous.  While the contract was detailed in its delineation of the subcontractor’s design, drawing, calculation and technical support requirements, it was silent on what if any obligations the subcontractor had for an infill area, which was the location of the plaintiff’s injury.  The court considered extrinsic evidence including expert affidavit testimony on the parties’ previous projects to determine the scope of the subcontractor’s obligations.

The subcontractor’s summary judgment evidence showed that in the parties’ prior 20 or so projects, neither the general contractor nor the project manager ever asked the subcontractor to provide design or support for infill areas.  Because of this, the Court held that the parties’ past dealings and their course of performance on the Trump Tower project conclusively showed that the concrete subcontractor had no contractual responsibility for the infills.  The Court affirmed summary judgment for the subcontractor on the general contractor’s contribution claim.  Gomez, ¶¶18-19, 30.

Take-away: Gomez presents a good summary of some fundamental and prevalent Illinois contract interpretation principles.  The case specifies that where a contract is ambiguous, a court will consider evidence – namely, expert testimony – of the contracting parties’ prior dealings as well as their course of performance on the same project in order to give content to an unclear contract term.