Do Not Pass Go

The Louisiana Supreme Court recently addressed the impact of contractual "errors" in Cynthia Fry Perionnet and Elizabeth Fry Franklin v. Matador Resources Company, 2012-2292, 2012-2377, -- So. 3d --.

The Perionnet case involved a dispute over the intent of a contract to extend a mineral lease. The property owners believed that the lease was extended as to only 168.95 acres of nonproducing land. The defendant/lessors argued that the contract contemplated that the lease would extend to the entire 1850.34 acres to include producing wells. Plaintiffs/property owners argued that their unilateral error regarding the terms of the contract was ground for rescission. The jury ruled in favor of the defendant/lessors. The Court of Appeal reversed. The Supreme Court granted writs.

The Perionnet Court began its opinion with an overview of basic tenets of contract law. The Louisiana Civil Code defines a contract as "an agreement by two or more parties whereby obligations are created, modified, or extinguished." La. C.C. art. 1906. Contracts are formed through offer and acceptance. La. C.C. art. 1927. Once formed, contracts have "the effect of law for the parties and may be dissolved only through the consent of the parties or on grounds provided by law." La. C.C. art. 1983. One such "ground" under Louisiana law is "error." La. C.C. art. 1948.

The Louisiana Civil Code recognizes two forms of error: mutual error (both parties are mistaken) or unilateral error (only one party is mistaken). However, for either error to cause the dissolution of a contract, the error (1) must effect the cause of the obligation and (2) the other party must have known that the matter impacted by the error was the reason for the contract. La. C.C. art. 1949. In a case of mutual error, the court can reform the contract. Either partial or full rescission is the only remedy available for unilateral error. La. CC. art. 1952.

A party challenging a contract for unilateral error must also prove that the error was excusable. "Louisiana jurisprudence is sprinkled with cases which deny relief to the parties who claim an agreement should be invalidated because of unilateral error which is caused, in large part, by the complaining party's inexcusable ignorance, neglect or want of care." Id. p. 25.

The Perionnet Court found that the plaintiffs' alleged mistake was inexcusable. The defendants demonstrated that: 1) plaintiffs could show no excuse for failing to read and understand the contract; 2) plaintiffs' agents who negotiated and reviewed the contract were self-proclaimed experts in oil and gas; and 3) the original lease was on the plaintiffs' agent's own forms. The Court found a "sea of flags" in the written agreement that should have notified the experienced plaintiffs that the agreement extended to the entire property. Therefore, the Court found that the mistake was easily detectable and could have been rectified by a minimal amount of care, i.e. "by simply reading the document and/or requesting simple changes to the written offer before acceptance." Id. at 30.

The Supreme Court's Perionnet decision serves as a healthy reminder of a basic concept - read your contracts. Although to err may be human, it can affect your bottom line.

With home prices soaring in today’s housing market, many people choose to rent rather than buy. Factored into their decision is the style, the square footage, the location, and other criteria, but few renters consider one risk that comes with many, if not most, leases. Many renters are exposed to personal liability for accidents occurring on the premises, and they don’t even know it.A lease is executed between the renter/tenant (the “lessee”) and the property owner (the “lessor”). By law, the lease imposes general obligations on both parties.The lessee (renter) is bound:

1. to pay the rent in accordance with the agreed terms;

2. to use the thing as a prudent administrator and in accordance with the purpose of which it was leased; and,

3. to return the thing at the end of the lease in a condition that is the same as it was when the thing was delivered to him, except for normal wear and tear. LSA C.C. Art. 2683

The lessor (property owner) is bound:

1. to deliver the thing to the lessee;

2. to maintain the thing in a condition suitable for the purpose of which is was leased; and,

3. to protect the lessee’s peaceful possession for the duration of the lease.” LSA C.C. Art. 2682.

These general obligations are typically expanded by terms in the lease because the lessee and lessor are “free to contract for any object that is lawful, possible and determined or determinable.” Family Care Services, Inc. v. Owens, 46 So.3d 234 (La. App. 2 Cir. 8/11/10). This “freedom of contract” allows the parties to construct their own bargains, shifting certain rights and obligations. In many commercial and residential lease agreements, this shifting includes a transfer of the liability for vices or defects on or in the leased premises.Although the lessor warrants that the leased premises is free of vices or defects, Louisiana law allows the lessee to assume responsibility for the condition of the leased premises under LA. R.S. 9:3221. Often, lessees assume that the lessor, as the owner of the premises, will be responsible if there is an accident. However, cases such as Jamison v. D’Amico, 955 So.2d 161 (La. App. 4^th Cir. 3/14/07) demonstrate that the owner may be entirely free of fault even though they owned a defective premises which caused an accident. In Jamison, a worker was injured when a floor collapsed beneath her. There was insufficient evidence that the owner was aware of the defective floor. Because the lease contained a clause shifting responsibility, the owner was under no duty to inspect the premises and was dismissed from the case.A lesson to all renters: read and understand the provisions in your lease. Even if you like the colors and the location, you should also like the lease contract before you sign it.

Under Louisiana law, unjust enrichment is a cause of action that is based in equity and provides that no one should be enriched at the expense of another. The elements of an unjust enrichment claim are: (1) an enrichment; (2) an impoverishment; (3) a connection between the enrichment and the impoverishment; (4) an absence of justification or cause for the enrichment and impoverishment; and (5) no other available remedy at law. The Supreme Court recently addressed the fourth element regarding the absence of justification for the enrichment.

In H & O Invs., LLC v. Par. of Jefferson Through Sheng, a grass cutting contractor entered into a contract with the Parish for grass cutting in certain areas. The Parish separately contracted with a second contractor for weed control of the same areas. During the contract period, the grass cutting contractor notified the Parish that there was unanticipated weed growth and suggested that the weed control contractor was not properly applying the herbicide. The grass cutting contractor alleged that its work became more expensive because of the weed control contractor’s failure to perform its contractual obligation.

The grass cutting contractor sued the Parish alleging unjust enrichment. The Parish filed an exception of no cause of action, claiming that there was no claim for unjust enrichment because a contract existed between the parties. The Fifth Circuit disagreed and held that the contractor could bring a claim for unjust enrichment because there was no contractual claim between the contractor and the Parish, as both parties fulfilled their contract obligations.

The Supreme Court reversed, noting that a claim for unjust enrichment requires a showing that there was an “absence of justification or cause for the enrichment.” The Supreme Court held that when a contract exists between the parties, it serves as the law between them, and that contract is the legal cause or justification for the enrichment. Therefore, the contract between the contractor and the Parish was in fact the justification for the enrichment such that it could not be “unjust.” The Supreme Court dismissed the contractor’s suit against the Parish.

Reference:

H&O Invs., LLC v. Par. of Jefferson, 24-554 (La. App. 5 Cir. 12/18/24), writ granted, decision rev'd sub nom. H & O Invs., LLC v. Par. of Jefferson Through Sheng, 2025-00086 (La. 5/20/25), 408 So.3d 958.

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