Illinois Sales Representative Act Doesn’t Apply to Construction Repair “Services” – IL 1st Dist

 

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The Illinois Sales Representative Act, 820 ILCS 120/1 (the “ISRA”) provides a cause of action for independent sales representatives who are owed sales commissions.  By covering independent contractors (as opposed to employees), the ISRA serves as a powerful gap filler to the Illinois Wage Payment and Collection Act, which applies specifically to employees owed wages by their employers.

Key ISRA terms include “sales representative”, “commission” and “principal.”  A sales representative is someone who solicits orders on behalf of a principal.  A principal is defined as a person who manufactures, sells, imports or distributes a “product” and who pays a sales representative on commission.  The ISRA defines  a commission as a percentage of the total dollar amount of sales or percentage of profits.  820 ILCS 120/1(1)-(3).

The ISRA principal must pay an earned commission to the sales representative within 13 days of either (a) the termination of the principal-sales rep contract or (b) the date on which the commissions are earned.  If the principal fails to pay within that 13-day period, the sales representative can recover treble damages (3 times the amount of the best commissions) plus attorneys’ fees and costs.  820 ILCS 120/1(1)-(3).

Johnson v. Safeguard Const. Co., Inc., 2013 ILApp (1st) 123616, examines whether a sales representative who solicits orders for a combination of goods and services can state an ISRA claim.

The plaintiff’s job was to try and sign up homeowner clients for the defendant’s  construction restoration services.  The plaintiff was paid a commission based on a percentage of the defendant’s profits.  The defendant didnt ‘t actually perform the construction repair work or supply the materials.  It did all work through subcontractors.

Plaintiff sued under the ISRA and for breach of contract for unpaid commissions.  The court entered summary judgment on the ISRA claim and plaintiff voluntarily dropped his breach of contract claim.  Plaintiff appealed the dismissal of the ISRA count.

Held: Affirmed.  The ISRA doesn’t apply because defendants don’t manufacture or sell a “product” under the ISRA.

Rules/Reasoning:

The ISRA applies to principals who manufacture, produce, import, or distribute “products” for sale.  Illinois caselaw has interpreted “products” to mean tangible goods, not services.  (¶16).  In “mixed product” cases – ones that involve goods and services, the Court looks to the main purpose of the contract and looks to whether goods are incidental to the services offered.  (¶¶ 18-20).  If services are the contract’s central aim and tangible materials are only tangential to the contract, the ISRA doesn’t apply.  Id.

The Court rejected plaintiff’s argument that the defendant supplied both goods and services to its construction restoration clients.  Even though the contract mentioned “products and services”, the Court still found that the ISRA didn’t apply.  The key factor was that the defendant didn’t perform the work or furnish any materials; but instead, sub-contracted the work and materials to third parties.

The Court held that since defendant didn’t actually perform the work or supply any tangibles  materials to its homeowner clients, the main purpose of the contract between plaintiff and defendant and between defendant and the homeowners clients was for plaintiff’s home restoration services.  Any goods or products offered were purely incidental to the contract’s main goal: signing up accounts for the defendant.  (¶¶ 21-22).

Notes:  This case espouses  a literal interpretation of a statute and shows that where a contract’s main purpose is rendition of services – as opposed to supplying tangible goods – the ISRA won’t apply.  The court distinguished this case from a Federal case (Nicor Energy v. Dillon, 2004 WL 51234) where the court allowed an ISRA claim involving the sale of energy and natural gas services.  In that case, because the contract required the plaintiff to sell specific quantities of natural gas and electricity to end users, the “goods” portion of the contract predominated over the services portion.

 

 

Substantial Performance Doctrine: Contractor Defeats Finicky Homeowners in Construction Case (the ‘You Missed A Spot’ Post)

Two diva-esque homeowners (I don’t judge; I just report) who demanded impossible perfection from a contractor got slapped with a $100,000-plus bench trial verdict in Wolfe Construction v. Knight, 2014 IL App (5th) 130115-U. Affirming the damage award, the appeals court gave content to the substantial performance doctrine, expanded on the requirement of contractual definiteness and applied the governing standards for recovering contractual interest and attorneys’ fees,

The plaintiff contractor was hired to perform renovation work on the defendants’ home after a fire damaged the home.  The written contract required the homeowners to pay for any extras and to also foot the bill for any services not covered by their homeowners’ insurance.  Over a span of about a year, the contractor completed nearly all of the restoration work (about 95% of it) and performed some $30,000 of additional work including interior painting, building a new porch and custom-ordering and installing kitchen cabinets – all at the defendants’ specific request.  But according to the homeowners, the contractor’s work was lacking and the homeowners refused to pay and kicked the contractor off the job.  The contractor sued for breach of contract and after a bench trial, won a $100,000-plus judgment against the homeowners, including amounts for unpaid services, extras, contractual interest and attorneys’ fees.  The homeowners appealed.

Held: Money judgment for the contractor affirmed.

Rules/Reasoning:

The Court upheld the judgment for the contractor; noting that the defendants demanded “perfection and the impossible.”  The law doesn’t require surgical precision in construction contract performance.  Instead, the contractor is held only to the duty of substantial performance in a workmanlike manner.  For substantial performance, a contractor must show there was an honest and faithful performance of the contract in its material and substantial aspects.  The contractor must also demonstrate there was no willful departure from, or omission of the contract’s essential elements.  A nebulous standard, the substantial performance test depends on the unique facts of each case.  (¶33).

During trial, both sides presented expert testimony in support of their position and the Court found that the contractor completed about 95% of the job before the defendants fired it (the contractor).  (¶¶ 25-26).  And since the defects asserted by the homeowners involved items which pre-dated the contractor’s involvement, the Court found those deficiencies weren’t the contractor’s fault.  The Court also found the homeowner’s blatantly biased expert’s testimony to be incredible and even “laughable.”  For these reasons, the Court sided with the contractor on all issues. (¶34).

The Court also affirmed the trial court’s award of interest and attorneys’ fees under the contract; but against only one of the homeowners.  Interest and attorneys’ fees generally are not recoverable unless specified in a written contract.  ¶¶36-37.  If a contract does provide for interest and attorneys’ fees, only the party that signs the contract will have to pay them.  (¶ 37).  Here, the parties’ construction contract clearly delineated that the homeowners would be responsible for the contractor’s attorneys’ fees and would have to pay monthly interest at 1.5% on tardy amounts if the contractor sued. The Court held that since the contractual interest and fee-shifting language was clear, it was enforceable – but only against the defendant that signed the contract.  The homeowner that didn’t sign the contract wasn’t responsible for the over $26,000 in interest and nearly $40,000 in attorneys’ fees awarded to the plaintiff contractor.  (¶ 38).

Aftermath:

Definitely a pro-contractor and anti-persnickety homeowner case.  I suppose perfectionism, as character trait and life ethos, has its merits.  But the law doesn’t require it; at least not in the construction setting.   This case illustrates in lurid detail the perils of a property owner having unrealistic and too-exacting expectations of his contractor.  Blemish-free work is not required under the law.  As this case amply shows, if a contractor substantially performs or is prevented from remedying or completing performance by a recalcitrant homeowner, the contractor will win.  Wolfe Construction also seems to set a fairly lenient benchmark for a contractor to establish substantial performance.  This case should and will likely give property owners pause before they declare a default and fail to pay a contractor.

 

 

 

Release and Satisfaction of Judgment and Guaranty Liability – IL Law

ReleaseBrahos v. Chickerneo,  2014 IL App (2d) 130543-U, examines Illinois money damages rules, the extent of a guarantor’s liability and satisfaction-of-judgment requirements against the backdrop of a business dispute involving a failed car dealership.

The plaintiff got a multi-million dollar fraud judgment against multiple defendants that stemmed from a failed car dealership business venture.  In post-judgment proceedings, the dealership was sold and the sale proceeds satisfied plaintiff’s judgment against all defendants except for one.  That remaining defendant then moved to dismiss the citation proceedings and for satisfaction of the remaining judgment balance – about $600K.  The trial court agreed and ordered the judgment satisfied.  The plaintiff appealed.

Held: Reversed.  The $600,000 still owed the plaintiff on the money judgment was not satisfied by the bank releasing the investor guarantors from liability under the various dealership loans.

Rules/Reasoning:

Reversing the trial court and finding that the plaintiff still could purse defendant for the balance of the money judgment, the Court applied several salient guaranty and release/satisfaction-of-judgment rules:

– Generally, the discharge of the principal obligation discharges the guarantor’s obligation;

– Code Section 12-183 (735 ILCS 5/12-183) requires a judgment creditor to sign a release and satisfaction of judgment so that the debtor can record that release with the Court that entered the judgment

– the party seeking the release of a judgment bears the burden of proving that a judgment entered against him was released;

– a release is a contract and is governed by contract law;

– the contracting parties intention is determined by the plain language of the contract;

– it is only where a contract is ambiguous (reasonably susceptible to two opposing meanings) that evidence is allowed in to explain what the contracting parties intended;

– typically, a money judgment can only be satisfied by paying the judgment unless the parties agree otherwise.

(¶¶ 32-35).

The Second District sided with the plaintiff and found that his money judgment shouldn’t have been deemed satisfied by the trial court.  The plaintiff never agreed to release his money judgment against the defendant and there was no evidence that plaintiff agreed to accept a “noncash benefit”- namely, the release from his guarantor liability to the bank.

The Court also pointed to the promissory note that required defendant to pay the judgment’s remaining $600K to the plaintiff.  The bank’s release of the dealership investors from their loan and guaranty liabilities didn’t  affect the defendant’s note liability.

In addition, the dealership lender’s release of the various investors (including plaintiff) from their bank obligations didn’t mention plaintiff’s damage award against the remaining defendant. (¶ 35).

The defendant’s double recovery argument – that the plaintiff got a windfall having his guaranty liability to the bank released while getting paid $600K from the defendant – was also rejected. 

The Court found there was no double recovery because plaintiff was not getting paid twice for the same injury and the bank was not a “joint tortfeasor” with the defendant.  Instead, the bank was a third-party creditor. ¶ 37.

Take-aways: 

–  A release of judgment will be construed as written and not expanded beyond its clear terms;

– A creditor isn’t required to release a money judgment unless that creditor is paid or the parties agree otherwise.