Consultant’s Quantum Meruit and Time-And-Materials Contract Claims Fail Against Contractor (IL 2d Dist)

Mostardi Platt Environmental, Inc. v. Power Holdings, LLC, 2014 IL App (2d) 130737-U shows the importance of clarity in contract drafting – particularly compensation terms.  The case also illustrates the crucial distinction between a time-and-expense (or time and materials) contract and a lump-sum payment contract.

Plaintiff was hired to perform environmental assessment services and to secure government permits for the defendant contractor who was building a gas facility in southern Illinois.  The parties’ original agreement was a time-and-expense contract and was later amended to a lump sum contract totaling about $100,000.

A dispute arose when the plaintiff realized that it underestimated the project’s scope and time commitment and sought additional monies from the defendant.  The defendant refused after the plaintiff failed to specify the needed extra work.  The plaintiff sued for damages and the defendant counterclaimed.  The trial court ruled against the plaintiff on all counts and for defendant on its counterclaim.

Held: Affirmed

Reasons:

The Court first rejected the consultant’s quantum meruit claim.  Quantum meruit is an equitable theory of recovery used by a party to obtain restitution for the unjust enrichment of the other party. 

Illinois law allows alternative pleading and quantum meruit is often pled as a fallback theory to a breach of contract claim.  It allows a plaintiff to recover the reasonable value of his work where there is no contract a contractual defect.  A quantum meruit claim can’t co-exist with an express contract. 

Here, the court found that the parties had an express contract – the environmental consulting agreement.  Because of this, the trial court properly denied plaintiff’s quantum meruit claim.  (¶¶ 75-78).

The Court also agreed that the plaintiff breached the consulting contract.  Under basic contract law, where parties reduce an agreement to writing, that writing is presumed to reflect the parties’ intent. 

The contract is interpreted as a whole and the court applies the plain and ordinary meaning of unambiguous contract terms.  A party who seeks to enforce a contract must establish “substantial performance” – that he substantially complied with the material terms of the agreement.  (¶¶ 81-82, 95).

The Court found that the plaintiff breached the contract in multiple respects.  Reading the original and amended consulting contracts together, the court found that the plaintiff was required but failed to provide itemized invoices for extra or “out-of-scope” work and also failed to complete its permitting tasks.  By walking off the job before it secured the required environmental permit, the plaintiff breached a material contract term. (¶¶  89-91).

The Court also rejected plaintiff’s impossibility defense, based on the claim that a substitute contractor (hired after the plaintiff walked off the job) changed the scope of the project and made it impossible for the plaintiff to perform.

Impossibility refers to situations where a contract’s purpose or subject matter has been destroyed; making performance impossible.  But the defense is applied sparingly since the purpose of contract law is to allow parties to freely allocate risks among themselves and a party’s performance should only be excused in extreme circumstances.  (¶ 97).

Finding no impossibility, the Court noted that the plaintiff only showed that the stated contract price was underbid and didn’t adequately compensate it for the needed extra work.  The Court held that impossibility of performance requires a litigant to show more than mere difficulty in performing or that he struck a bad bargain.  Performance must truly be rendered impossible due to factors beyond the party’s control.  ¶¶ 97-98.

 Take-aways: In the construction realm, some typical contractual compensation schemes include time-and-materials or time and expense, cost-plus arrangements or lump sum payment agreements.  Labeling a contract with the proper payment designation is critical; especially when a project’s scope and duration is uncertain.  This case makes it clear that in situations involving commercially sophisticated parties, a court will hold them to the clear language of their contract – even if has harsh results for one of the parties after the fact.  

Contractual Impossibility? Global Economic Crash Doesn’t Excuse Performance Of Real Estate Deal – Illinois Court

In YPI 180 N. LaSalle, LLC v. 180 N. LaSalle II, LLC, 403 Ill.App.3d 1 (1st Dist. 2010), the court examined whether the 2008 global credit crisis was significant and unforeseen enough to merit application of the impossibility of  performance doctrine in connection with a real estate contract for the sale of a Chicago office building.

Facts

The parties entered into a contract to purchase the office building for a cool $124M.  The plaintiff – the buyer’s assignee – deposited $6M in earnest money.  When the world credit markets froze, plaintiff wasn’t able to get financing and couldn’t consummate the purchase.

The seller then terminated the contract and retained the buyer’s $6M earnest money.  Plaintiff sued to rescind the contract and for return of its $6M earnest money deposit claiming that the world financial crisis made it impossible for it to go forward with the building’s purchase.  The Court dismissed plaintiff’s complaint on defendant’s motion.  The First District affirmed.

Rules/reasoning

The basis for the plaintiff’s rescission claim was contractual impossibility: that the world credit crisis made it impossible for the plaintiff to obtain the necessary financing to buy the building. 

In Illinois, the impossibility of performance doctrine applies where the purposes for which a contract was made have become impossible for one side to perform.  Impossibility excuses contractual performance where performance is “objectively impossible” due to the contract subject’s destruction or by operation of law

But where a contingency that causes the impossibility could have been anticipated and guarded against, impossibility won’t excuse performance. The party asserting impossibility must show that events or circumstances making performance impossible were not reasonably foreseeable at the time of contracting and the defense won’t apply where the event creating impossibility lies within the promisor’s power to remove the obstacle to performance.  *6-7.

Here, the First District sided with the defendant and held that even if the credit crunch did make it impossible for the plaintiff to buy the building, its inability to get financing could have been anticipated and provided for in the contract.

The Court noted that an inability to secure financing is pretty much always a risk in any contract setting and that if the court allowed failed financing to excuse performance, it would completely undercut contract law.  *7.

The Court also pointed to the plaintiff’s financial largesse in rejecting the impossibility argument; the plaintiff’s $1.6 billion in assets showed that it had the power to remove any obstacles to performance selling off some of its assets and paying the $124M purchase price for the building. *8

Take-aways:

Not even a cataclysmic, world-wide financial disaster qualified for the impossibility defense.  There’s actually more to it than that but YPI definitely shows that the impossibility of performance defense (or offense) can be a tough sell and is sparingly applied in Illinois contract litigation.

The case also cautions parties to take pains to allocate risks and provide for obstacles to performance during the contract formation phase.  YPI also seems to suggest that if a party claiming impossibility has the financial resources to remove the obstacle preventing performance, an impossibility of performance argument may fail.