The Second District affirmed summary judgment for the plaintiff pancake house (“Restaurant”) seller in a breach of contract action against the Restaurant’s buyer and current operator. Siding with the seller, the court discussed the contours of the substantial performance doctrine and what kind of evidence a plaintiff must supply to win summary judgment in a contract dispute.
The plaintiff in El and Be, Inc. v. Husain, 2016 IL App (2d) 150011-U, sold the Restaurant for about $500K pursuant to an Asset Purchase Agreement (APA). The defendant failed to pay the agreed purchase price when it learned the plaintiff had several unpaid vendor bills, utility debts and a lien lawsuit was filed in Texas against Restaurant equipment by a secured creditor of the plaintiff. The plaintiff sued for breach of contract to recover the APA purchase price and the defendant counterclaimed for fraud and breach of the APA. The trial court entered summary judgment for the plaintiff on its claims as well as defendants’ counterclaims.
Affirming summary judgment for the plaintiff, the Second District framed the salient issue as whether the plaintiff substantially performed its APA obligations.
Perfect performance isn’t required to enforce a contract. Instead, a plaintiff must show he substantially performed. Substantial performance is hard to define and is a fact-based inquiry. In deciding whether substantial performance has occurred, a court considers whether a defendant received and enjoyed the benefits of the plaintiff’s performance. Substantial performance allows a plaintiff to win a breach of contract suit; especially where his performance is done in reliance on the parties’ contract.
The court found that the defendant Restaurant buyer clearly benefitted from the plaintiff’s performance. The buyer gained the Restaurant assets and goodwill and operated the Restaurant continuously for over a year before plaintiff sued to enforce the APA. The defendant’s operation of the Restaurant during this pre-suit period was a tangible benefit flowing to the defendant from the plaintiff’s APA performance. (¶¶ 25-27).
Next, the Court rejected the defendant’s fraud counterclaim – premised on plaintiff’s failure to disclose outstanding debts prior to the Restaurant sale. The defendant claimed this omission exposed the defendant to a future lien foreclosure action and a possible money judgment by plaintiff’s creditors.
In Illinois, a fraud plaintiff must establish (1) a false statement of material fact, (2) the statement maker’s knowledge or belief that the statement was false; (3) an intention to induce the plaintiff to act based on the statement, (4) reasonable reliance on the truth of the statement by the plaintiff, and (5) damage to the plaintiff resulting from the reliance. A fraud claimant must also prove damages (monetary loss, e.g.) with reasonable certainty. While mathematical precision isn’t required, fraud damages that are speculative or hypothetical won’t support a fraud suit.
Here, since the defendant made only generalized allegations of possible damages and could not point to actual damages evidence – such as having to defend a lien foreclosure suit or a money judgment – the fraud claim failed. On summary judgment, a litigant must offer evidence to support its claims. The defendant’s failure to produce measurable damages evidence stemming from plaintiff’s pre-sale omissions doomed the fraud claim. (¶¶ 33-36)
El and Be, Inc. cements the proposition that perfect performance isn’t required to enforce a contract. Instead, a breach of contract plaintiff must show substantial performance – that he performed to such a level that the defendant enjoyed tangible benefits from the performance. Where a contract defendant clearly reaps monetary awards from a plaintiff’s contractual duties, the substantial performance standard is met.
The case also makes clear that fraud must be pled and proven with acute specificity and that vague assertions of damages without factual back-up won’t survive summary judgment.