Category: Remedies

Anticipatory Repudiation: Illinois Court Examines Doctrine in Real Estate Distpute

The home sellers’ failure to plead the buyers’ anticipatory repudiation of a real estate contract spelled defeat in Kelly v. Orrico, 2014 IL App (2d)  130002, a recent Second District case. 

In Kelly, the plaintiffs and defendants – who happened to be friends and neighbors (they lived on the same street) – entered into a real estate contract for plaintiffs to sell their house to the defendants for $1.2M.  

When defendants couldn’t sell their home, plaintiffs contracted with another buyer.  That buyer defaulted and plaintiffs eventually sold the house for $200,000 less than the contract price with the defendants.

Plaintiff sued defendants for breach of the real estate sales contract seeking to recover the $200,000 difference between the contract price with defendants ($1.2M) and the sales price to the new buyer ($1M). 

After a bench trial, the court ruled that the defendants anticipatorily repudiated the real estate sales contract and awarded plaintiffs damages of $150,000 (the $200K difference in the underlying contract price and the sales price to the new buyer minus the $50,000 earnest money plaintiffs kept after the first buyer defaulted).  Defendants appealed.

Held: Reversed.

Rules/Reasoning:

Anticipatory repudiation denotes a “party’s clear manifestation of its intent not to perform under a contract.”  The party claiming anticipatory repudiation must show more than an “ambiguous implication” of nonperformance. He has to demonstrate the other party made it very clear he won’t perform.  (¶¶ 29-30).

Here, plaintiffs didn’t plead anticipatory repudiation; they only alleged breach of contract.  This was a mistake because any proof at trial that the defendants repudiated the contract didn’t help the plaintiffs since an anticipatory repudiation claim was absent from the complaint. 

While Code Section 2-616(c) allows a party to amend pleadings at any time (even after judgment) to conform the pleadings to the proofs, plaintiff never filed a motion to amend their complaint to allege anticipatory repudiation.

The plaintiffs didn’t substantively prove anticipatory repudiation either.  The Court described anticipatory repudiation as a doctrine not to be taken lightly and where one repudiates a contract – by clearly indicating that he won’t perform – the other party to the contract is excused from performing or he may perform and seek damages for breach. 

The Court found that the defendants actions indicated, at most, ambivalence as to whether they would buy plaintiffs’ house. 

The plaintiffs offered no proof at trial that defendants tried to terminate the contract or indicated they wouldn’t proceed to closing.  Significantly, the Court found that defendants’ failure to respond to plaintiffs’ attorney’s letter declaring defendants in default didn’t constitute a clear manifestation of intent not to buy plaintiffs’ home.  (¶30).

Take-aways:

This case illustrates anticipatory repudiation’s strict pleading and proof elements.

The case’s procedural lesson here is clear: a litigant should move to amend his pleadings when the proofs at trial don’t match up.  Here, it wouldn’t have made a difference though.  The Court found defendants’ actions weren’t definite enough to rise to the level of a clear-cut intention not to proceed to closing.

Election of Remedies vs. Alternative Pleading In Illinois

The election of remedies doctrine clashes with Illinois alternative pleading rules in Evashank v. Miller Brewing Company, 2013 IL App (1st) 112987-U, a case involving a dispute over a misread beer promotional ticket.

The plaintiff was given a promotional sticker at the Coach’s Corner bar that plaintiff thought read “win a million dollars”.  It actually said “this summer I want to win a million dollars.”  When the plaintiff tried to claim his big bucks prize, the bar and promotional staff said no and plaintiff sued the beer company and promotional group for fraud and breach of contract. 

Before trial, the court made the plaintiff to choose whether he was going to pursue his fraud or breach of contract claims against the bar.  Plaintiff chose the latter.  The court found for the tavern and plaintiff appealed.

Result: Reversed in part.

Election of Remedies

The election of remedies doctrine applies where a plaintiff elects inconsistent remedies for the same injury.  The rule provides that the prosecution of one remedy to judgment bars a second action stemming from the same transaction based on an inconsistent theory.  The prototypical example: a plaintiff can’t seek to recover breach of contract damages while at the same time  (or later) try to rescind that same contract.  The remedies are inconsistent.

Illinois courts confine the election of remedies rule to situations where (1) double compensation for the plaintiff is threatened, (2) defendant has been misled by the plaintiff’s conduct in choosing one remedy over another, or (3) where res judicata applies (final judgment on the merits, same parties, same cause of action). 

The election of remedies rule bars a plaintiff from recovering on one theory in a case and then later seeking a different remedy in a second case based on the same facts (as the first case). ¶¶ 50-51

But Illinois law does permit alternative pleading.  Code Sections 2-604 and 2-613 allow a plaintiff to plead inconsistent theories of recovery and allege contradictory facts at the pleading stage.  A plaintiff can also go to trial on inconsistent claims (e.g. fraud and breach of contract).  The proofs at that trial will determine which theory, if any, the plaintiff can recover on.  ¶¶47-49.

Here, there was only one case.  Plaintiff didn’t try to first recover on fraud and then, in a second action, try to recover for breach of contract.  While fraud and breach of contract have different pleading and proof elements and proving one (breach of contract) normally prevents proof of the other (fraud), a plaintiff can still proceed to trial on both legal theories; he just can’t recover damages on both. 

Since plaintiff should have been allowed to take both his breach of contract and fraud counts to trial, the trial court mistakenly made plaintiff choose his remedy at the pre-trial stage.  And while the First District viewed the plaintiff’s fraud claim as weak, it still reversed the dismissal of that count because the trial court misapplied the election of remedies rule.

The Breach of Contract Claim

The trial court properly directed verdict against plaintiff on the breach of contract count.  There was no meeting of the minds or consideration.  The plaintiff admitted he paid nothing for the “million dollar sticker” and had no expectation of winning a million dollars when he visited the bar.  This precluded a finding that there was an enforceable agreement.  The sticker was misread; plain and simple.  There was no enforceable contract.  ¶¶ 49-52.

Afterwords:

A case that features a deep analysis of some finer procedural points in a “fun” fact pattern.  Some key take-aways include:

1/ An absence of a meeting of minds will prevent enforcement of a contract; especially in the promotional setting;

2/ An advertisement or promotional “offer” is generally construed as an invitation to make an offer – not an offer that invites acceptance.

3/ While Illinois permits alternative pleading, it doesn’t allow recovery on inconsistent remedies (e.g. a plaintiff can’t recover for breach of contract while at same time seek rescission of the contract.);

4/ A plaintiff can’t recover for both fraud and breach of contract (he must choose one or the other), but he doesn’t have to make this choice until after trial.

 

Stipulation In Earlier Case Subjects LLC Member to Unjust Enrichment and Constructive Trust Judgment in Check Cashing Dispute – IL 1st Dist.

In a densely fact-packed case that contains an exhausting procedural history, the First District recently provided guidance on the chief elements of the equitable unjust enrichment and constructive trust remedies.

National Union v. DiMucci’s (2015 IL App (1st) 122725) back story centers around an anchor commercial tenant’s (Montgomery Ward) bankruptcy filing and its corporate landlord’s allowed claim for about $640K in defaulted lease payments.  In the bankruptcy case, the landlord assigned its approved claim by written stipulation to its lender whom it owed approximately $16M under a defaulted development loan.

The bankruptcy court paid $640K to the landlord who, instead of assigning it to the lender, pocketed the check.  The lender’s insurer then filed a state court action against the landlord’s officer (who deposited the funds in his personal account) to recover the $640K paid to the landlord in the Montgomery Ward bankruptcy.  After the trial court granted summary judgment for the plaintiff on its unjust enrichment and constructive trust counts, the defendant appealed.

Affirming the trial court’s judgment for the plaintiff, the First District first focused on the importance of the stipulation signed by the landlord in the prior bankruptcy case. The court rejected the landlord’s argument that his attorney in the bankruptcy case lacked authority to stipulate that the landlord would assign its $640K claim to the plaintiff’s insured (the lender). 

A stipulation is considered a judicial admission that cannot be contradicted by a party.  But it is only considered a judicial admission in the case in which it’s filed.  In a later case, the earlier stipulation is an evidentiary admission that can be explained away.

The law is also clear that a party is normally bound by his attorney’s entry into a stipulation on the party’s behalf. This holds true even where the attorney makes a mistake or is negligent.  Where an attorney lacks a client’s express authority, a client is still bound by his attorney’s conduct where the client fails to promptly seek relief from the stipulation. To undo a stipulation entered into by its attorney, a party must make a clear showing that the stipulated matter was untrue. Since the landlord failed to meet this elevated burden of invalidating the stipulation, the court held the landlord to the terms of the stipulation and ruled that it should have turned over the $640K to the plaintiff.

Unjust Enrichment and LLC Act

Next, the court examined the plaintiff’s unjust enrichment count. Unjust enrichment requires a plaintiff to show a defendant retained a benefit to plaintiff’s detriment and that the retention of the benefit violates basic principles of fairness. Where an unjust enrichment claim is based on a benefit being conferred on a defendant by an intermediary (here, the bankruptcy agent responsible for paying claims), the plaintiff must show (1) the benefit should have been given to the plaintiff but was mistakenly given to the defendant, (2) the defendant obtained the benefit from the third party via wrongful conduct, or (3) where plaintiff has a better claim to the benefit than does the defendant. (¶ 67)

Scenario (1) – benefit mistakenly given to defendant – clearly applied here. The bankruptcy court agent paid the landlord’s agent by mistake when the payment should have gone to the plaintiff pursuant to the stipulation.

The court also rejected defendant’s claim that he wasn’t liable under the Illinois LLC Act which immunizes LLC members from company obligations.  805 ILCS 180/10-10.  However, since plaintiff sued the defendant in his individual capacity for his own wrongful conduct (depositing a check in his personal account), the LLC Act didn’t protect the defendant from unjust enrichment liability.

Constructive Trust

The First District then affirmed the trial court’s imposition of a constructive trust on the $640K check.  A constructive trust is an equitable remedy applied to correct unjust enrichment. A constructive trust is generally created where there is fraudulent conduct by a defendant, a breach of fiduciary duty or when duress, coercion or mistake is present. While a defendant’s wrongful conduct is usually required for a court to impose a constructive trust, this isn’t always so. The key inquiry is whether it is unfair to allow a party to retain possession of property – regardless of whether the party has possession based on wrongful conduct or by mistake.

Here, the defendant failed to offer any evidence other than his own affidavit to dispute the fact that he wrongfully deposited funds that should have gone to the plaintiff; the court noting that under Supreme Court Rule 191, self-serving and conclusory affidavits aren’t enough to defeat summary judgment. (¶¶ 75-77)

Take-aways:

This case offers a useful synopsis of two fairly common equitable remedies – unjust enrichment and the constructive trust device – in a complex fact pattern involving multiple parties and diffuse legal proceedings.

The case makes clear that a party will be bound by his attorney’s conduct in signing a stipulation on the party’s behalf and that if a litigant wishes to nullify unauthorized attorney conduct, he carries a heavy burden of proof.