While a signed agreement is almost always preferable to an oral one, the absence of a writing won’t always doom a breach of contract action.
Trapani v. Elliot Group, Inc., 2016 IL App (1st) 143734, examines what happens when parties don’t sign a contract but still act as if an agreement exists.
In a construction dispute, the First District affirmed a trial court’s finding that an implied-in-fact contract existed between the contractor plaintiff and the real estate developer defendant. In upholding the $250K-plus judgment for the plaintiff, the Court highlights the nature and scope of implied contracts and discusses the agent-of-a-disclosed-principal rule.
The plaintiff submitted a draft contract that identified the defendant as “owner.” The defendant, who wasn’t the owner (it was the developer), never signed the contract.
Despite the absence of a signed contract, the plaintiff performed the work contemplated by the draft agreement and was paid over $2M over a several-month period. Plaintiff sued to recover for its remaining work after the developer refused to pay. The developer denied responsibility for the plaintiff work: it claimed it merely acted as the owner’s agent and that plaintiff should have looked to the owner for payment.
The trial court entered judgment for the plaintiff. It found that the plaintiff and developer, while lacking a signed written agreement, had an implied-in-fact contract. The developer appealed.
Whether an implied in fact contract (or “contract implied in fact”) exists depends on the surrounding facts, circumstances and expressions of the parties demonstrating an intent to be bound.
A contract implied in fact is a classic contract by conduct. It arises where the court imposes a contractual duty on a party based on the party’s promissory expression that shows an intention to be bound;
The promissory expression can be inferred from the parties’ conduct and an implied in fact contract can be found even where there is no express contract between the parties;
An implied in law contract differs in that it is an equitable remedy based on the principle that no one should unjustly enrich himself at another’s expense;
Acceptance of an implied in fact contract can be shown by conduct of the parties and a course of dealing that demonstrates the parties’ intent to form a binding agreement.
The Court agreed with the trial court that the parties’ conduct supported a finding of an implied in fact contract. The Court noted that throughout the construction project, the plaintiff communicated regularly with the defendant and provided lien waivers and payment certificates to the defendant. The defendant also provided project specifications to the Plaintiff and approved multiple change orders over the course of plaintiff’s work on the site. Significantly, the defendant never rejected plaintiff’s work or demanded that plaintiff stop working at any time during the project.
Next, the Court tackled the developer’s argument that it wasn’t liable to the plaintiff since the developer was acting as the agent of the property owner. In Illinois, an agent who contracts with a third party generally is not liable so long as he discloses his principal’s identity. Where the agent fails to identify his principal, it creates an “undisclosed principal” scenario which will make the agent personally liable if the contract is later breached. (¶ 60)
The reason for the undisclosed principal rule is reliance: the third party (here, the plaintiff) relies on the agent’s credit when entering the contract. As a result, it would be unfair to immunize the agent and have the undisclosed principal shoulder the financial burden when the agent fails to reveal the principal. The dearth of evidence showing a relationship between the developer (agent) and the owner (principal) led the Court to sustain the trial court’s finding that the developer was responsible for the outstanding amounts owed the plaintiff contractor.
1/ An implied in fact contract is a valid, enforceable contract, despite a lack of express agreement. Instead, the parties’ intention to be contractually liable can be shown through course of dealing between parties;
2/ The agent of a disclosed principal is generally immunized from liability. However, where the agent fails to sufficiently disclose its principal’s identity, the agent remains liable if the plaintiff can show it relied on the agent’s credit and lacked notice of the agent’s principal’s identity.