Statute of Frauds’ ‘Goods Over $500’ Section Dooms Car Buyer’s Oral Contract Claim (IL First Dist.)

I’ve written here before on the Statute of Frauds (SOF) and how it requires certain contracts to be in writing to be enforceable.  I’ve also championed “MYLEGS” as a useful mnemonic device for dissecting a SOF issue.

M stands for ‘Marriage’ (contracts in consideration of marriage), Y for ‘Year’ (contracts that can’t be performed within the space of a year must be in writing), L for ‘Land’ (contracts for sale of interest in land), E for ‘Executorship’ (promises by a executor to pay a decedent’s creditor have to be in writing), G is for ‘Goods’ (contracts to sell goods over $500) and S for ‘Surety’ (a promise to pay another’s debt requires a writing).

The First District recently affirmed the trial court’s dismissal of a breach of contract based on the Uniform Commercial Code’s (UCC) SOF provision governing the sale of goods for over $500 (the “G” in the above MYLEGS scheme).

The plaintiff in Isenbergh v. South Chicago Nissan, 2016 IL App(1st) 153510 went to a car dealer defendant to buy a new Nissan Versa (Versa 1) with specific features (manual transmission, anti-lock brakes, etc.).  When told the requested car wasn’t in stock, the plaintiff opted to rent a used car temporarily until the requested car was available.  But instead of renting a used car, the Plaintiff alleged the dealership convinced him to enter into a verbal “Return Agreement” for a substitute Versa (Versa 2). 

Under the Return Agreement, the dealership promised to sell the plaintiff Versa 2 – which didn’t have plaintiff’s desired features – and then buy it back from Plaintiff when Versa 1 was in stock.  According to Plaintiff, the Return Agreement contemplated Plaintiff’s total payments on Versa 2 would equal only two months of sales contract installment payments.

Plaintiff claimed the dealership refused to honor the Return Agreement and Plaintiff was stuck making monthly payments on Versa 2 (a car he never wanted to begin with) that will eventually eclipse $28,000.  The trial court granted defendant’s Section 2-619 motion to dismiss Plaintiff’s breach of contract action based on the SOF.

Held: Affirmed.

Reasons:

The SOF requires that a contract for the sale of goods for the price of $500 or more be in writing to be enforceable. 810 ILCS 5/2-201.  A “contract for sale” includes both a present sale of goods as well as a contract to sell goods in the future.  A “sale” is the passing of title from seller to buyer for a price. 810 ILCS 5/2-106, 103.  “Goods” under the UCC are all things “movable” at the time of identification to the contract for sale. 810 ILCS 5/2-105.

The Return Agreement’s subject matter, a car, clearly met the UCC’s definitions of “goods” and the substance of the Return Agreement was a transaction for the sale of goods.  (The dealership promised to buy back Versa 2 from the Plaintiff once Versa 1 (the car Plaintiff wanted all along) became available.

Since Versa 2’s sale price was over $26,000 and plaintiff’s two payments under the Versa 2 purchase contract exceeded $1,100, Versa 2 easily met the SOF’s $500 threshold. Because of this, the Court found that the SOF defeated plaintiff’s claim for breach of an oral agreement to buy and sell a car selling for well over $500.

Afterwords:

This case presents a straightforward application of the SOF section governing the sale of goods that retail for at least $500.  Clearly, a motor vehicle is a movable “good” under the UCC and will almost always meet the $500 threshold by definition.

The case also makes clear that even if the contract contemplates a future sale and purchase (as opposed to a present one), the UCC still governs since the statute’s definition of sales contract explicitly speaks to contracts to sell goods in the future.

Finally, the case is a cautionary tale for car buyers and sellers alike as it shows that oral promises likely will not be enforced unless reduced to writing.

‘Substantial Truth’ Defeats Wisconsin Plaintiff’s Tortious Interference Suit – 7th Circuit

In Wesbrook v. Ulrich 2016 WL 6123534, the Seventh Circuit examined the reach of the truth defense to a tortious interference with contract action stemming from a bitter dispute between a prominent Wisconsin medical clinic and one of its high-level employees.

The plaintiff sued a former co-worker and ex-supervisor for tortious interference with contract claiming the two worked in concert to engineer the plaintiff’s firing from the clinic.  The plaintiff claimed the defendants repeatedly made critical statements about him to third parties that resulted in his being ostracized by clinic staff and ultimately let go.  The District Court granted summary judgment for the clinic and the plaintiff appealed.

Held: Affirmed.

Reasons:

To prove tortious interference with contract in Wisconsin, the plaintiff must show (1) a valid contract or a prospective contractual relationship with a third party, (2) defendant’s interference with that relationship, (3) interference by the defendant that was intentional, (4) a causal connection between the interference and damages, and (5) the defendant wasn’t justified or privileged to interfere.

To sue a co-worker for tortious interference, the plaintiff must show (1) that the employer did not benefit from the co-worker’s/defendant’s statement, and (2) the co-worker’s act was independently tortious (i.e., fraudulent or defamatory).

Whether conduct or a statement is privileged is a fact-driven question that looks at the nature, type and duration of the conduct and whether the conduct was fair under the circumstances.  But where the challenged statement is true, it is privileged as a matter of law.  There can be no cause of action aimed at a true statement; even one motivated by ill will toward a plaintiff.

The same holds for “substantially true” statements.  Even where a statement isn’t 100% accurate, so long as it’s true in most of its particulars, it’s still privileged and will defeat a tortious interference claim.  Tort law does not demand “artificial precision” in common use of language.

Here, the defendants’ challenged statements concerning plaintiff were substantially true.  Defendants’ verbal and written assertions that plaintiff had an autocratic management style, threatened his subordinates, and that several employees had lodged complaints against him were true enough to defeat plaintiff’s claims.  While there were arguably some factual specifics that were either embellished or omitted from the statements, the Court viewed their substance as sufficiently accurate to negate plaintiff’s tortious interference suit.

The Seventh Circuit also based its decision granting summary judgment for the defendants on policy grounds.  It reasoned that if a plaintiff could sue a co-worker every time he believed that co-worker instigated or contributed to the firing decision, it would swallow up the general rule that at-will employees cannot sue for breach of contract where they are fired without warning or cause.

Afterwords:

1/ An interesting case in that it examines the tortious interference tort in the factually anomalous setting of an at-will employee suing his co-workers instead of his employer after a discharge;

2/ The key holding from the case is that truth is a defense not only to defamation but also to tortious interference with contract under Wisconsin law;

3/ A statement’s truth is construed flexibly: it doesn’t have to be completely accurate.  Even if there are exaggerated aspects of a statement, so long as the statement meets the substantially true test, the speaker will be privileged to tortiously interfere.

‘Integration’ Versus ‘Non-Reliance’ Clause: A ‘Distinction Without a Difference?’ (Hardly)

Two staples of sophisticated commercial contracts are integration (aka “merger” or “entire agreement”) clauses and non-reliance (aka “no-reliance” or “anti-reliance”) clauses. While sometimes used interchangeably in casual conversation, and while having some functional similarities, there are important differences between the two clauses.

An integration clause prevents parties from asserting or challenging a contract based on statements or agreements reached during the negotiation stage that were never reduced to writing.

A typical integration clause reads:

This Agreement , encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent that they have not relied on any representation, assertion, guarantee, or other assurance, except those set out in this Agreement, made by or on behalf of any other party prior to the execution of this Agreement. 

Integration clauses protect against attempts to alter a contract based on oral statements or earlier drafts that supposedly change the final contract product’s substance.  In litigation, integration/merger clauses streamline issues for trial and avoid distracting courts with arguments over ancillary verbal statements or earlier contract drafts.here integration clauses predominate in contract disputes,

Where integration clauses predominate in contract disputes, non-reliance clauses typically govern in the tort setting.  In fact, an important distinction between integration and non-reliance clauses lies in the fact that an integration clause does not bar a fraud (a quintessential tort) claim when the alleged fraud is based on statements not contained in the contract (i.e,. extra-contractual statements). *1, 2

A typical non-reliance clause reads:

Seller shall not be deemed to make to Buyer any representation or warranty other than as expressly made in this agreement and Seller makes no representation or warranty to Buyer with respect to any projections, estimates or budgets delivered to or made available to Buyer or its counsel, accountants or advisors of future revenues, expenses or expenditures or future financial results of operations of Seller.  The parties to the contract warrant they are not relying on any oral or written representations not specifically incorporated into the contract.”  

No-reliance language precludes a party from claiming he/she was duped into signing a contract by another party’s fraudulent misrepresentation.  Unlike an integration clause, a non-reliance clause can defeat a fraud claim since “reliance” is one of the elements a fraud plaintiff must show: that he relied on a defendant’s misstatement to the plaintiff’s detriment.  To allege fraud after you sign a non-reliance clause is a contradiction in terms.

Afterwords:

Lawyers and non-lawyers alike should be leery of integration clauses and non-reliance clauses in commercial contracts.  The former prevents a party from relying on agreements reached during negotiations that aren’t reduced to writing while the latter (non-reliance clauses) will defeat one side’s effort to assert fraud against the other.

An integration clause will not, however, prevent a plaintiff from suing for fraud.  If a plaintiff can prove he was fraudulently induced into signing a contract, an integration clause will not automatically defeat such a claim.

Sources:

  1. Vigortone Ag Prods. v. AG Prods, 316 F.3d 641 (7th Cir. 2002).
  2. W.W. Vincent & Co. v. First Colony Life Ins. Co., 351 Ill.App.3d 752 (1st Dist. 2004)