Student Name:
Law
Topic:
Novation (2 different cases)
Type of work:
Case Study:
Breach of contract arises in the course of contractual performance under novation, thus calling for courts of law to settle the arising disputes through legal and ethical principles. In this regard, there different breaches of contract cases under novation in Florida, such as the case of Pijuan v. Bank of America and Engel and Volkers v. SGM and FL-7.
Pijuan v. Bank of America
Countrywide Home loans loaned Francisco and Luisa Pijuan a loan amounting to $410,000.The loan was memorized using an adjustable-rate promissory note and secured with a mortgage-related to a Miami Beach real property, which was owned by Pijuan (Justia, 3). The promissory note required Pijuan to service the loan at monthly premiums of $2,050. A third party, Bank of America (BOA), was introduced into the contract by assuming the Pijuan note and mortgage from the countrywide loans home. The novice arrangement thus substituted Countrywide with BOA making the original contract to be between Pijuan and Bank of America.
The original contractual agreement between Countrywide and Pijuan was that Pijuan was required to make monthly principal and interest payment of $2,050 to Countrywide as a repayment of the loan. Consequently, on 2009 March, Pijuan received Loan modification approval from Countrywide, and for the LMA to be valid, it was to be sent to Francisco and Luisa for signing and returned to countrywide. The LMA was signed and emailed to Countrywide, thus making it valid and operational. (Justia, 7). The LMA adjusted by the monthly payment being reduced from $2,050 to $1,630 from May 1, 2009. The LMA required compliance with other covenants under the original documents that had not been altered by LMA. In this regard, from April 2009 to October 2010, Pijuan made $1,630.51 monthly totaling to $29,349.36. Consequently, BOA assumed the Pijuan note and mortgage from Countrywide without the consideration of the Pijuan return of the executed LMA. On December 31, 2010, BOA sent a default letter to Pijuan, arguing that Pijuan had defaulted the payment of the loan since November 2009. BOA argued that for Pijuan to had to settle a payment of $42,523.45 before January 11. 2011. The default letter did not touch issues on the LMA. BOA filed a suit alleging the default by Pijuan based on the December 2006 note and mortgage.
In the court, the Pijuan defense was that BOA failed to perform by providing proper default notes as per the terms of the mortgage, and BOA fails to consider and acknowledge the existence of the LMA. On the other hand, the bank argued that Pijuan had defaulted on the loan based on the promissory note and mortgage. (Justia, 11).The issue, in this case, as if the LMA constituted a novation of the original loan. At the trial, the court identified factual matters that the parties had entered the LMA in March of 2009, and the LMA incorporated the novation of the original December 2006 loan documents. The court argued that Pijuan had breached the LMA and entered the subject foreclosure judgment. The court argument was that when parties to a mortgage engage in an LMA, an action of foreclosing must claim a breach of the LMA. The foreclosure judgment was overturned, and the case was remanded with directives to dismiss it.
In conclusion, it was ethical for the parties in the original agreement to seek a substitute (BOA) to replace Countrywide since countrywide had earlier financial obligation to need under the BOA, and thus Pijuan making the payments to BOA would ensure Countrywide meet their legal obligation. The novation was not sufficiently completed since Countrywide did not disclose all the terms of the agreement, including the additional LMA. The novation was not satisfactory as resulted in a legal conflict between Pijuan v. Bank of America due to non-disclosure of full terms of the contract. There was no enforcement on the contract against the substituted party. The arising ethical issue, in this case, is the non-disclosure on the part of countrywide to BOA, thus resulting in conflicts with Pijuan.
Engel and Volkers v. SGM and FL-7
The case of Engel and Volkers v. SGM and FL-7 had different parties, all with different duties and obligations under the contract before the rise of the litigation. In this regard, SGM Building Group, Inc. (SGM) surrendered their rights and obligations as a purchase in two different agreements to FL-7, Inc. (FL-7) at the end of the deal (Elizabeth, 4). Consequently, FL-7 closed the deal on the properties without paying brokerage commission to Engel & Volkers as earlier agreed with SGM. In this regard, Engel and Volkers sued both the FL-7 and SGM for breaching the terms of the contract with the intention of recovering commissions owed.
Engel and Volkers acted in the position of a broker in for SGM and thus entered in a contract thus would see SGM buy the desired property while Engel and Volkers would receive a brokerage commission at the close of the deal. However, before the closing of the deal, SGM made a decision to transfer their rights and obligation under the agreement to FL-7. (Elizabeth, 7). This meant that FL-7 would receive the items purchased and settle the commission fees to Engel and Volkers. Engel and Volkers met their duties and obligation but failed to get their rights under the contract, thus inclining them to file a lawsuit to recover their commission.
In court, Engel and Volkers claim against SGM and FL-7 was clear since it alleged that SGM breached a provision to settle Engel and Volkers commission in line with the brokerage commission agreement following the successful closure of the sale agreements. (Elizabeth, 9). Engel and Volkers argued because the rights and obligations under the contract were assigned to FL-7, then the assignee became liable to settling the brokerage commission. The trial court gave the motion for summary judgment and ruled in favor of Engel and Volkers. The court ruled that the defendants (SGM AND FL-7) materially breached their obligation under the contract by failing to settle the commission for the sales under the two contracts. The court argued that SGM and FL-7 were jointly liable under the two contracts, and thus they would settle the commission of $142,500 and the post-judgment interests.
Finally, it was not ethical for the SGM to seek FL-7 as a substitute in this case since FL-7 was used to evade making brokerage commission payments. The parties sought novation as they had ulterior motives of evading brokerage commission. The novation was completed since FL-7 took the position of the SGM in the sale agreement. The novation was not satisfactory to the parties as the substituting party failed to honor the agreement. The brokers sought to enforce the contract against the substituted party by jointly suing the substituting and the substituted parties. The ethical issue arising from the case is the failure to honor original agreements at the expense of one of the original parties to the contract.
Work cited
Justia . PIJUAN V. BANK OF AMERICA. Third District Court of Appeal. State of Florida. (2018).
Elizabeth Mary k.). Engel and Volkers v. SGM and FL-7. IN THE SECOND DISTRICT COURT OF APPEAL, LAKELAND, FLORIDA. (2018).
