In February 2012, the Court of Appeals issued an opinion that provides guidance to property managers in avoiding liability for debts unpaid by property owners.
In the case, Owner hired Property Manager to manage apartment complex on its behalf. In connection with its management duties, Property Manager hired Contractor to repair and renovate an apartment complex pursuant to a contract. The contract specifically stated that Contractor would look to Owner for all payments, and recognized that Property Manager was simply an agent for Owner.
After Contractor performed the work, the apartment was foreclosed upon and Contractor was left unpaid. Contractor then brought suit based on the contract (open account) and alleged fraudulent misrepresentation – arguing that Property Manager ordered the work knowing that Owner would be unable to pay. The trial court dismissed both claims in favor of Property Manager, and Contractor appealed.
On appeal, the court rejected Contractor’s open-account claim, relying exclusively on the contract language. The primary argument, however, related to Contractor’s claim of fraudulent misrepresentation. Such a claim requires a showing that the defendant: (i) made false representations, (ii) knew the representations were false, (iii) intended to deceive and induce reliance by the plaintiff, (iv) the plaintiff justifiably relied on the representations, and (v) the representations resulted in damages and loss to the plaintiff.
To contest the fraud claim, Property Manger cited the long history it had with Owner, which had always paid its bills. Though rental income from the apartment complex was rarely sufficient to meet each month’s financial obligations at the property, Owner regularly infused capital to meet those needs. By the time Contractor had completed its work, however, the apartment complex was foreclosed upon. Contractor was unable to refute these allegations, and failed to produce any other evidence showing, at the time it ordered the work, Property Manager knew Owner could not pay for it. Accordingly, the court affirmed the trial court’s ruling in favor of Property Manager.