Opinion ID: 393042
Heading Depth: 2
Heading Rank: 1

Heading: The National Agreement

Text: 8 The district court noted that there were two contracts between the parties: the contract of title insurance and the national agreement between Red Lobster and Lawyers Title. The court awarded loss of profits to Red Lobster by going beyond the title insurance contract and basing liability in tort for the misperformance of the national agreement contract. Red Lobster Inns of America, Inc. v. Lawyers Title Insurance Corp., supra, 492 F.Supp. at 939-41. 9 On appeal, Lawyers Title 4 first argues that the national agreement does not constitute a contract because it lacked the consideration necessary for the formation of a contract. However, a contract was formed between the parties because Arkansas recognizes that mutual promises constitute adequate consideration for contract formation. Abbott v. Arkansas Utilities Co., 165 F.2d 339, 341 (8th Cir. 1948). See Grayling Lumber Co. v. Hemingway, 124 Ark. 354, 187 S.W. 327 (1916); Eustice v. Meytrott, 100 Ark. 510, 140 S.W. 590 (1911). The mutual promises were Red Lobster's promise to buy the bulk of its title insurance from Lawyers Title in exchange for Lawyers Title's promise to give Red Lobster priority service. 10 Lawyers Title's second contention is that even if the national agreement is a contract, it merged into and is superceded by the title insurance policy. Lawyers Title relies upon item twelve of the conditions and stipulations section of the title insurance policy which provides in pertinent part:12. Liability Limited to this Policy 11 This instrument together with all endorsements and other instruments, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company. 12 Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the title to the estate or interest covered hereby or any action asserting such claim, shall be restricted to the provisions and conditions and stipulations of this policy. 13 The Arkansas Supreme Court has cited and followed the Restatement of the Law of Contracts § 240. Arkansas Aviation Sales, Inc. v. Carter Construction Co., 250 Ark. 1007, 469 S.W.2d 118, 119 (1971); Bonds v. Littrell, 247 Ark. 577, 446 S.W.2d 672, 674 (1969); Magee v. Robinson, 218 Ark. 54, 234 S.W.2d 27, 29 (1950). The relevant portion of section 240 provides: 14 § 240. In What Cases Integration Does Not Affect Prior or Contemporaneous Agreements. 15 (1) An oral agreement is not superseded or invalidated by a subsequent or contemporaneous integration, nor a written agreement by a subsequent integration relating to the same subject-matter, if the agreement is not inconsistent with the integrated contract, and 16 (a) is made for separate consideration, or 17 (b) is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract. 18 The district court ruled, and we agree, that there were two separate contracts between the parties. Under the national agreement Lawyers Title agreed to examine title and inform Red Lobster of use restrictions, while under the insurance policy Lawyers Title agreed to insure the title to the property. The national agreement setting out the priority service is not inconsistent with the title insurance policy which does not cover title examination and the duty to disclose restrictive covenants. The requirement in section 240(1)(a) is met because there was separate consideration for each contract. As previously discussed, mutual promises formed the consideration for the national agreement. In contrast, Red Lobster paid Lawyers Title for its promise of coverage under the title insurance contract. Additionally, the requirement in section 240(1)(b) is fulfilled because the national agreement is a broader contract of the type which would naturally be made as a separate agreement. The national agreement had been in effect since approximately July 1974, and many parcels of land had been acquired under it. For those parcels a specific title insurance policy was purchased. Therefore, the parties intended that the national agreement survive the issuance of the title insurance policy covering the 1976 Little Rock transaction and that the national agreement would apply in Red Lobster's future land purchases. In conclusion, the limitation in item twelve of the title insurance policy does not cause the national agreement to be merged into or superseded by that policy. 19 Lawyers Title's third contention is that the award of loss of profits is barred because Arkansas follows the tacit agreement rule for the recovery of consequential damages in breach of contract cases. Under that rule, the plaintiff must prove more than the defendant's mere knowledge that a breach of contract will entail special damages to the plaintiff. It must also appear that the defendant at least tacitly agreed to assume responsibility. Morrow v. First National Bank, 261 Ark. 568, 550 S.W.2d 429, 430 (1977). 20 The district court's award of loss of profits was based in tort, therefore, the tacit agreement rule is inapplicable and consequential damages are recoverable. See Morrow v. First National Bank, supra, 550 S.W.2d at 431. In ruling that tort law allowed recovery, the district court relied upon Dean Prosser, who states that tort liability for misfeasance has been extended by American courts to virtually every type of contract where defective performance of the contract may injure the promisee.The principle which seems to have emerged from the decisions in the United States is that there will be liability in tort for misperformance of a contract whenever there would be liability for gratuitous performance without the contract which is to say, whenever such misperformance involves a foreseeable, unreasonable risk of harm to the interests of the plaintiff. 21 W. Prosser, Law of Torts, § 92 at 617-18 (4th ed. 1971). 22 The Arkansas Supreme Court, sitting en banc, cited and followed Prosser's distinction between misfeasance which may support a cause of action in tort and nonfeasance or inaction, which does not give rise to a cause of action in tort in Findley v. Time Insurance Co., 264 Ark. 647, 573 S.W.2d 908, 911 (1978). 5 See Morrow v. First National Bank, supra, 550 S.W.2d at 431-32. The district court correctly ruled that the faulty title search and the failure to inform Red Lobster of the use restriction against restaurants constituted misperformance of the national agreement. Lawyers Title knew of Red Lobster's particular interest in the existence of restrictive use covenants and its misperformance involved a foreseeable, unreasonable risk of harm to the interest of Red Lobster. We affirm the award of loss of profits to Red Lobster. 6