The ‘Procuring Cause’ Rule – Ill. Appeals Court Weighs In

The First District recently applied the ‘procuring cause’ doctrine to award the plaintiff real estate broker a money judgment based on a reasonable brokerage commission in Jameson Real Estate, LLC v. Ahmed, 2018 IL App (1st) 171534.

The broker provided the defendant with specifics concerning an “off market” car wash business and the land it sat on. The plaintiff later gave defendant a written brokerage contract for the sale of the car wash business and property that provided for a 5% sales commission.  The defendant never signed the contract.

After many months of negotiations, defendant orally informed plaintiff he no longer wished to buy the property and stopped communicating with plaintiff.

When plaintiff later learned that defendant bought the property behind plaintiff’s back, plaintiff sued to recover his 5% commission. The trial court directed a verdict for defendant on plaintiff’s express contract claims but entered judgment for plaintiff on his quantum meruit complaint count.  The money judgment was for an amount that was congruent with what a typical buyer’s broker – splitting a commission with a selling broker – would earn in a comparable commercial sale.

Quantum meruit, which means “as much as he deserves” provides a broker plaintiff with a cause of action to recover the reasonable value of services rendered but where no express contract exists between the parties.

A quantum meruit plaintiff must plead and prove (1) it performed a service to the benefit of a defendant, (2) that it did not perform the service gratuitously, (3) the defendant accepted the plaintiff’s service, and (4) no written contract exists to prescribe payment for the service.

The fine-line distinction between quantum meruit and unjust enrichment is that in the former, the measure of recovery is the reasonable value of work and material furnished, while in the unjust enrichment setting, the focus is on the benefit received and retained as a result of the improvement provided.  [¶ 61]

In the real estate setting, a quantum meruit commission recovery can be based on either a percentage of the sales price or the amount a buyer saved by excising a broker’s fee from a given transaction. [¶ 64]

Where a real estate broker brings parties together who ultimately consummate a real estate sale, the broker is treated as the procuring cause of the completed deal. In such a case, the broker is entitled to a reasonable commission shown by the evidence. A broker can be deemed a procuring cause where he demonstrates he was involved in negotiations and in disseminating property information which leads to a completed sale. [¶ 69]

The appeals court found the trial court’s quantum meruit award of $50,000, which equaled the seller’s broker commission and which two witnesses testified was a reasonable purchaser’s broker commission, was supported by the evidence. (Note – this judgment amount was less than half of what the broker sought in his breach of express contract claim – based on the unsigned 5% commission agreement.)

The Court rejected defendant’s ‘unclean hands’ defense premised on plaintiff’s failure to publicly list the property (so he could purchase it himself) and his lag time in asserting his commission rights.

The unclean hands doctrine prevents a party from taking advantage of its own wrong.  It prevents a plaintiff from obtaining legal relief where he is guilty of misconduct in connection with the subject matter of the litigation.  For misconduct to preclude recovery, it must rise to the level of fraud or bad faith. In addition, the misconduct must be directly aimed at the party against whom relief is sought.  Conduct geared towards a third party, no matter how egregious, generally won’t support an unclean hands defense.

Here, the defendant’s allegation that the plaintiff failed to publicly list the property, even if true, wasn’t directed at the defendant.  If anything, the failure to list negatively impacted the non-party property owner, not the defendant.

Afterwords:

In the real estate broker setting, procuring cause doctrine provides a viable fall-back theory of recovery in the absence of a definite, enforceable contract.

Where a broker offers witness testimony of a customary broker commission for a similar property sale, this can serve as a sufficient evidentiary basis for a procuring cause/quantum meruit recovery.

 

Vague Oral Agreement Dooms Mechanics Lien and Home Repair Act Claims – IL First Dist.

The First District recently examined the quantum of proof necessary to prevail on a breach of oral contract and mechanics lien claim and the factors governing a plaintiff’s request to amend its pleading.

In Link Company Group, LLC v. Cortes, 2018 IL App (1st) 171785-U, the Defendant hired the plaintiff – his former son-in-law – to rehab a residence in the Northern suburbs of Chicago. After a dispute over plaintiff’s construction work and billing issues, the plaintiff sued to foreclose a mechanics lien and for breach of contract. The defendant counter-sued and alleged plaintiff violated the Illinois Home Repair and Remodeling Act (IHRRA) requires, among other things, a contractor to provide certain disclosures in writing to a homeowner client. The trial court granted summary judgment for the defendant on plaintiff’s lien and contract claims and denied summary judgment on defendant’s IHRRA counterclaim. All parties appealed.

Affirming, the appeals court first took aim at the plaintiff’s breach of contract and mechanics lien claims.

While oral contracts are generally enforceable, they must contain definite and essential terms agreed to by the parties. For an oral contract to be enforceable, it must be so definite and certain in all respects that the court can determine what the parties agreed to.

Here, the substance of the oral contract was vague. When pressed at his deposition, the plaintiff was unable to articulate the basic terms of the parties’ oral construction contract. Since the court was unable to decipher the key contract terms or divine the parties’ intent, the plaintiff’s breach of contract failed.

The plaintiff’s inability to prove-up its oral contract claim also doomed its mechanics lien action. In Illinois, a valid mechanics lien foreclosure suit requires the contractor to prove an enforceable contract and the contractor’s substantial performance of that contract. Since the plaintiff failed to establish a binding oral contract, by definition, it couldn’t prevail on its mechanics lien claim.

The First District also affirmed the trial court’s denial of the plaintiff’s motion to amend its complaint. While amendments to pleadings are generally liberally allowed in Illinois, a court will not rubber stamp a request to amend. Instead, the court engages in a multi-factored analysis of (1) whether the proposed amendment would cure the defective pleading, (2) whether other parties would sustain prejudice by virtue of the proposed amendment, (3) whether the proposed amendment is timely, and (4) whether previous opportunities to amend the pleadings could be identified.

Here, the plaintiff’s proposed implied-in-fact contract was “nearly identical” to the stricken breach of oral contract claim. An implied-in-fact contract is one where contract terms are implicit from the parties’ conduct. Here, the parties conduct was too attenuated to establish definite contract terms. As a result, the proposed implied-in-law contract claim was facially deficient and didn’t cure the earlier, failed pleading.

Ironically, the plaintiff’s failure to allege an enforceable oral agreement also precluded summary judgment on the defendant’s IHRRA counterclaim. A valid IHRRA claim presupposes the existence of an enforceable contract. Since there was no written agreement and the parties’ oral agreement was unclear, there was no valid contract on which to hook an IHRRA violation.

Afterwords:

This case cements proposition that a valid oral contract claim requires proof of definite and certain terms. A plaintiff’s failure to allege a clear and definite oral agreement will prevent him from asserting either a mechanics lien or Home Repair Act claim based on the putative oral agreement.

Link Company also illustrates the four factors a litigant must satisfy in order to amend a pleading. If the proposed amended complaint fails to allege a colorable cause of action, a court can properly deny leave to amend despite Illinois’ liberal pleading amendments policy.

Contractor ‘Extras’ Claims Versus Quantum Meruit: A Fine-Line Distinction? (IL Case Summary)

Twin contract law axioms include (1) a quasi-contract claim (i.e. quantum meruit) cannot co-exist with one for breach of express contract, and (2) to recover for contract “extras” or out-of-scope work, a plaintiff must show the extra work was necessary through no fault of its own.  While easily parroted, the two principles can prove difficult in their application.

Archon v. U.S. Shelter, 2017 IL App (1st) 153409 tries to reconcile the difference between work that gives rise to quantum meruit recovery and work that falls within an express contract’s general subject matter and defeats a quantum meruit claim.

The subcontractor plaintiff installed a sewer system for a general contractor hired by a city.  The subcontract gave the City final approval of the finished sewer system.  City approval was a condition to payment to the plaintiff.  The subcontract also provided that extra work caused by the plaintiff’s deficiencies had to be done at plaintiff’s expense.

The subcontractor sued the general contractor to recover about $250K worth of repair work required by the City.  The trial court granted summary judgment for the general contractor on both plaintiff’s quantum meruit and extras claim.  On remand from an earlier appeal, the plaintiff dropped its extras claim and went forward solely on its quantum meruit claim.  The trial court again found for the general and the sub appealed.

Result: Summary judgment for general contractor affirmed.  Plaintiff’s quantum meruit claim fails as a matter of law.

Reasons:

To recover for quantum meruit (sometimes referred to as quasi-contract or implied contract), the plaintiff must prove (1) it performed a service to benefit a defendant, (2) it did not perform the service gratuitously, (3) defendant accepted the benefits of plaintiff’s services, and (4) no contract existed to prescribe payment for the service.

A quantum meruit claim cannot co-exist with a breach of express contract one: they are mutually exclusive.

Parties to a contract assume certain risks.  Sometimes, when they realize their contractual expectations aren’t going to be realized, they resort to quantum meruit recovery as a desperation maneuver.  The law doesn’t allow this.  “Quasi-contract is not a means for shifting a risk one has assumed under the contract.” (¶ 34)(citing Industrial Lift Truck Service Corp. v. Mitsubishi International Corp., 104 Ill.App.3d 357).

A contractor’s claim for ‘extras’ requires the contractor to prove that (1) the work for which it seeks compensation was outside the scope of a contract, and (2) the extra work wasn’t caused by the contractor’s fault.  

In a prior appeal, the Court found that it wasn’t clear whether the extra work was the result of the plaintiff contractor’s mistake.  As a result, the contractor made a strategic decision to abandon its extras claim and instead proceeded on its quantum meruit suit.

At first blush, an extras claim mirrors quantum meruit’s requirement of work that’s not tied to any express contract term.

However, as the Court emphasized, there’s a definite legal difference between a claim for extra work and one for quantum meruit.  “A claim for quantum meruit lies when the work the plaintiff performed [is] wholly beyond the subject matter of the contract that existed between the parties.” [¶ 39]

The key question is whether an express contract covers the same general subject matter as the challenged work.  If it does, there can be no quantum meruit recovery as a matter of law.  [¶ 45]

Applying these principles, the Court found that the work for which plaintiff sought to recover in quantum meruit – sewer pipe repairs and replacement – involved the same sewer system involved in the underlying express contract.  As a result, plaintiff’s quantum meruit claim failed.

Take-aways:

This case provides an interesting illustration of the fine-line distinction between a contractor’s action to recover for extra, out-of-scope work and services that merit quantum meruit recovery.

Contractors should take pains to make it clear in the contract that if they do perform extra work, there is a mechanism in place (i.e. time and materials terms) that quantifies the extras.  Since the sewer repair work fell within the general subject matter of the underlying sewer installation contract, it was easy for the Court to find that the express contract encompassed the plaintiff’s work and reject the quantum meruit claim.

In hindsight, the plaintiff should have pressed forward with its breach of express contract claim premised on the extra work it claimed it performed.