Duty to Cooperate Implied in Contract
July 25, 2014Mr. and Mrs. Carpenter hired the law firm of Shaw & Lemon to represent them in a lawsuit against Holmes Builders. The Carpenters agreed to pay Shaw & Lemon 40% of any recovery. Shaw & Lemon, in turn, hired attorney Daniel Hagood to assist with the case. In exchange for Mr. Hagood’s assistance, Shaw & Lemon agreed orally to pay him 25% of their 40% contingency fee.
Ultimately, the Carpenters obtained a judgment against Holmes for more than $2 million. Rather than pay the judgment, however, Holmes filed for bankruptcy protection. By this time, Mr. Shaw and Mr. Lemon had experienced a falling out and had parted ways (and sued each other). Mr. Lemon, on his own, was then retained by the bankruptcy trustee to recover assets for Holmes’ bankruptcy estate, for which he would receive 34% of any assets recovered. Significantly, as part of this arrangement, Mr. Lemon, on behalf of himself and his firm, waived any right to payment from the Carpenters.
It turns out that Mr. Lemon was fairly successful at recovering assets for the estate, as he recovered over $1 million. As a result, the Carpenters received nearly $600,000 for their claim. Once the Carpenters were paid, Mr. Hagood sought his cut of their recovery based on the agreement he had with Lemon and Shaw.
In this opinion, the Court of Appeals addressed several issues, one of which was whether Hagood had a valid breach of contract claim against Lemon. Lemon argued that since neither he nor his now-defunct firm received any payment from the Carpenters, Hagood had no claim. The Court rejected that argument, noting that “one who prevents or makes impossible the performance of a condition precedent upon which his liability under a contract is made to depend cannot avail himself of its nonperformance.” Here, the Court noted that Lemon’s waiver of his firm’s right to recover from the Carpenters made impossible the performance of the condition precedent to Lemon’s liability under the agreement with Hagood, because “[a] duty to cooperate is implied in every contract in which cooperation is necessary for performance of the contract.”
