Course of Dealing Leads to Implied-In-Fact Contract Judgment in Construction Spat – IL First Dist.

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.

Result: affirmed.

Reasons:

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.

(¶¶ 40-44)

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.

Afterwords:

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.

 

Implied-in-Law Contracts Versus Express Contracts: “Black Letter” Basics

Taxi Medallion(Taxi Medallion – Hood of Car, 2.6.16 – Grand and Halsted, Chicago, IL)

Tsitiridis v. Mahmoud, 2015 IL App (1st) 141599-U pits a taxi medallion owner against a medallion manager in a breach of contract dispute.  Plaintiff pled both express and implied contract theories against the medallion manager based on an oral, year-to-year contract where the plaintiff licensed the medallions to the defendant (who used them in his fleet of cabs) for a monthly fee.  Under the agreement, the defendant also assumed responsibility for all its drivers’ traffic and parking violations and related fines.

When the defendant failed to pay its drivers’ traffic fines, plaintiff covered them by paying the city of Chicago about $60K.  Plaintiff then sued the defendant for reimbursement.

After the trial court dismissed the complaint on the defendant’s motion, the medallion owner plaintiff appealed.

The First District partially agreed and disagreed with the trial court. In doing so, it highlighted the chief differences between express and implied-in-law contracts and the importance of a plaintiff differentiating between the two theories in its Complaint.

A valid contract in Illinois requires an offer, acceptance and consideration (a reciprocal promise or some exchange of value between the parties).

While the medallion contract involved in this case seemed factually unorthodox since it was a verbal, year-to-year contract, the plaintiff alleged that in the cab business, it was an “industry standard” agreement.  Plaintiff alleged that the agreement was a classic quid pro quo: plaintiff licensed the medallions to the defendant who then used the medallions in its fleet of cabs in exchange for a monthly fee to the plaintiff.

Despite the lack of a written agreement, the court noted that in some cases, “industry standards” can explain facially incomplete contracts and save an agreement that would normally be dismissed by a court as indefinite.

The plaintiff’s complaint allegations that the oral medallion contract was standard in the taxicab industry was enough to allege a colorable breach of express contract claim. As a result, the trial court’s dismissal of the breach of oral contract Complaint count was reversed.

The court did affirm dismissal of the implied contract claims, though.   It voiced the differences between implied-in-law and implied-in-fact contracts.

An implied-in-law contract or quasi-contract arises by implication and does not depend on an actual agreement.   It is based on equitable concerns that no one should be able to unjustly enrich himself at another’s expense.

Implied-in-fact contracts, by contrast, are express contracts.  The court looks to the parties’ conduct (instead of the contract’s language) and whether the conduct is congruent with a mutual meeting of the minds concerning the pled contract terms.  If there is a match between alleged contract terms and the acts of the parties, the court will find an implied-in-fact contract exists.

Illinois law is also clear that an implied-in-law contract cannot co-exist with an express contract claim.  They are mutually exclusive.  While Illinois does allow a plaintiff to plead conflicting claims in the alternative, a plaintiff cannot allege a breach of express contract claim and an implied-in-law contract one in the same complaint.

Since the plaintiff here incorporated the same breach of express contract allegations into his implied-in-law contract count, the two counts were facially conflicting and the implied-in-law count had to be dismissed.

Take-away:

Like quantum meruit and unjust enrichment, Implied-in-law contract can serve as a viable fallback theory if there is some factual defect in a breach of express contract action.

However, while Illinois law allows alternative pleading, plaintiffs should take pains to make sure they don’t incorporate their implied contract facts into their express contract ones. If they do, they risk dismissal.

This case also has value for its clarifying the rule that industry standards can sometimes inform a contract’s meaning and supply the necessary “gap fillers” to sustain an otherwise too indefinite breach of contract complaint count.

Implied-In-Fact Contract Claims and Motions to Reconsider – Illinois Law

In 1801 W. Irving, LLC v. Splitt Architects, Ltd., 2013 IL App (1st) 121357-U (September 12, 2013) a plaintiff developer sued an architect for breach of an oral contract and for implied indemnity in connection with the construction of a condominium building. 

The trial court struck all counts of the developer’s amended complaint and the developer appealed.

Held: Affirmed in part; reversed in part. 

Reasoning:

Breach of Oral Contract Claim

The court found the claimed oral contract was too indefinite to be enforced.  

Illinois requires that a contract’s material terms be sufficiently definite and certain so that the court can determine what the parties agreed to. ¶¶ 30-31.  

While certain nonessential terms can be missing, the parties’ failure to agree upon an essential term signals that mutual assent is lacking.

The court found several key terms were missing from oral contract including basic compensation terms.  For support, the court cited the developer’s deposition admission that the contract terms were in constant flux. ¶ 31.

Motion to Reconsider

The Court sustained the trial court’s denial of the developer’s motion to reconsider summary judgment for the architect.  A motion to reconsider’s purpose is to bring to the court’s attention (1) newly discovered evidence, (2) changes in the law, or (3) errors in the court’s prior application of law.  ¶ 33;

“Newly discovered evidence” means evidence that was not in existence at the hearing which generated the order being attacked.

Since the developer supported its motion to reconsider with its agent’s affidavit – an affidavit that wasn’t filed with its summary judgment responsethe developer  didn’t meet the newly discovered evidence test and the Court correctly refused to consider the affidavit.  ¶¶ 28, 33-34.

Implied-in-fact contract

The Court did find there was an implied-in-fact contract between the developer and architect.

An implied-in-fact contract, unlike an express contract, results from the parties’ acts and conduct. 

A contract implied-in-fact is one where a contractual obligation is imposed by the court due to some “expression or promise that can be inferred from the facts and circumstances.”   ¶ 40

The Court found the developer adequately pled an implied-in-fact contract.  The allegations that the architect and developer worked together on the project for several years without incident reflected a tacit services-for-compensation arrangement. ¶ 22.

Take-aways: A valid breach of contract claim requires that material terms be sufficiently definite and that there is a meeting of the minds on them;

A motion to reconsider based on newly discovered evidence means that the evidence didn’t exist at the time the challenged order entered;

An implied-in fact contract can present a fallback theory to breach of an express contract (if no formal contract exists) where the parties’ conduct indicates a mutual relationship with reciprocal performance and compensation.