Tag: Chicago

‘Lifetime’ Verbal Agreement To Share in Real Estate Profits Barred by Statute of Frauds – IL 1st Dist.

I previously summarized an Illinois case illustrating the Statute of Frauds’ (SOF) “one-year rule” which posits that a contract that can’t possibly be performed within one year from formation must be in writing.

Church Yard Commons Limited Partnership v. Podmajersky, 2017 IL App (1st) 161152, stands as a recent example of a court applying the one-year rule with harsh results in an intrafamily dispute over a Chicago real estate business.

The plaintiff (a family member of the original business owners) sued the defendant (the owners’ successor and son) for breach of fiduciary duties in connection with the operation of family-owned real estate in Chicago’s Pilsen neighborhood.  The defendant filed counterclaims to enforce a 2003 oral agreement to manage his parents’ realty portfolio in exchange for a partnership interest in the various entities that owned the real estate.   The trial court dismissed the counterclaim on the basis that the oral agreement equated to a “lifetime employment contract” and violated the SOF’s one-year rule.  Defendant appealed.

Result: Counterclaim’s dismissal affirmed.

Reasons:

The SOF’s purpose is to serve as an evidentiary safeguard: in theory, the Statute protects defendants and courts from proof problems associated with oral contracts since “with the passage of time evidence becomes stale and memories fade.”  (¶ 26; McInerney v. Charter Golf, Inc., 176 Ill.2d 482, 489 (1997).

An SOF defense is a basis for dismissal under Code Section 2-619(a)(7).

Section 1 of the SOF, 740 ILCS 80/1, provides: “No action shall be brought…upon any agreement that is not to be performed within the space of one year from the making thereof” unless the agreement is in writing.

Under this one-year rule, if an oral agreement can potentially be performed within the space of one year (from creation), regardless of whether the parties’ expected it to be performed within a year, it does not have be in writing.  As a result, contracts of uncertain duration normally don’t have to comply with the one-year rule – since they can conceivably be performed within a year.

What About Lifetime Employment Contracts?

Lifetime employment agreements, however, are the exception to this rule governing contracts of unclear duration.  Illinois courts view lifetime contracts as pacts that contemplate a permanent relationship.  And even though a party to a lifetime agreement could die within a year, the courts deem a lifetime agreement as equivalent to one that is not to be performed within a space of a year.  As a result, a lifetime employment contract must be in writing to be enforceable.

Here, the 2003 oral agreement involved the counterplaintiff’s promise to dedicate his life to furthering the family’s real estate business.  It was akin to a lifetime employment agreement.  Since the 2003 oral agreement was never reduced to writing, it was unenforceable by the counterclaim under the SOF one-year rule. (¶¶ 30-31)

What About the Partial Performance Exception?

The Court also rejected counter-plaintiff’s partial performance argument.  In some cases, a court will refuse to apply the SOF where a plaintiff has partially or fully performed under an oral contract and it would be unfair to deny him/her recovery.  Partial performance will only save the plaintiff where the court can’t restore the parties to the status quo or compensate the plaintiff for the work he/she did perform.

Here, the Counterplaintiff was fully compensated for the property management services he performed – it received management fees of nearly 20% of collected revenue.

Afterwords:

This case validates Illinois case precedent that holds lifetime employment contracts must be in writing to be enforceable under the SOF’s one-year rule.  It also makes clear that a party’s partial performance won’t take an oral contract outside the scope of the SOF where the party has been (or can be) compensated for the work he/she performed.  The partial performance exception will only defeat the SOF where the performing party can’t be compensated for the value of his/her services.

 

 

 

Statute of Frauds’ ‘Goods Over $500’ Section Dooms Car Buyer’s Oral Contract Claim (IL First Dist.)

I’ve written here before on the Statute of Frauds (SOF) and how it requires certain contracts to be in writing to be enforceable.  I’ve also championed “MYLEGS” as a useful mnemonic device for dissecting a SOF issue.

M stands for ‘Marriage’ (contracts in consideration of marriage), Y for ‘Year’ (contracts that can’t be performed within the space of a year must be in writing), L for ‘Land’ (contracts for sale of interest in land), E for ‘Executorship’ (promises by a executor to pay a decedent’s creditor have to be in writing), G is for ‘Goods’ (contracts to sell goods over $500) and S for ‘Surety’ (a promise to pay another’s debt requires a writing).

The First District recently affirmed the trial court’s dismissal of a breach of contract based on the Uniform Commercial Code’s (UCC) SOF provision governing the sale of goods for over $500 (the “G” in the above MYLEGS scheme).

The plaintiff in Isenbergh v. South Chicago Nissan, 2016 IL App(1st) 153510 went to a car dealer defendant to buy a new Nissan Versa (Versa 1) with specific features (manual transmission, anti-lock brakes, etc.).  When told the requested car wasn’t in stock, the plaintiff opted to rent a used car temporarily until the requested car was available.  But instead of renting a used car, the Plaintiff alleged the dealership convinced him to enter into a verbal “Return Agreement” for a substitute Versa (Versa 2). 

Under the Return Agreement, the dealership promised to sell the plaintiff Versa 2 – which didn’t have plaintiff’s desired features – and then buy it back from Plaintiff when Versa 1 was in stock.  According to Plaintiff, the Return Agreement contemplated Plaintiff’s total payments on Versa 2 would equal only two months of sales contract installment payments.

Plaintiff claimed the dealership refused to honor the Return Agreement and Plaintiff was stuck making monthly payments on Versa 2 (a car he never wanted to begin with) that will eventually eclipse $28,000.  The trial court granted defendant’s Section 2-619 motion to dismiss Plaintiff’s breach of contract action based on the SOF.

Held: Affirmed.

Reasons:

The SOF requires that a contract for the sale of goods for the price of $500 or more be in writing to be enforceable. 810 ILCS 5/2-201.  A “contract for sale” includes both a present sale of goods as well as a contract to sell goods in the future.  A “sale” is the passing of title from seller to buyer for a price. 810 ILCS 5/2-106, 103.  “Goods” under the UCC are all things “movable” at the time of identification to the contract for sale. 810 ILCS 5/2-105.

The Return Agreement’s subject matter, a car, clearly met the UCC’s definitions of “goods” and the substance of the Return Agreement was a transaction for the sale of goods.  (The dealership promised to buy back Versa 2 from the Plaintiff once Versa 1 (the car Plaintiff wanted all along) became available.

Since Versa 2’s sale price was over $26,000 and plaintiff’s two payments under the Versa 2 purchase contract exceeded $1,100, Versa 2 easily met the SOF’s $500 threshold. Because of this, the Court found that the SOF defeated plaintiff’s claim for breach of an oral agreement to buy and sell a car selling for well over $500.

Afterwords:

This case presents a straightforward application of the SOF section governing the sale of goods that retail for at least $500.  Clearly, a motor vehicle is a movable “good” under the UCC and will almost always meet the $500 threshold by definition.

The case also makes clear that even if the contract contemplates a future sale and purchase (as opposed to a present one), the UCC still governs since the statute’s definition of sales contract explicitly speaks to contracts to sell goods in the future.

Finally, the case is a cautionary tale for car buyers and sellers alike as it shows that oral promises likely will not be enforced unless reduced to writing.

Condo Buyer’s Illness Not Enough to Make Closing ‘Impossible’ – IL First District

An Illinois appeals court recently followed case precedent and narrowly construed the impossibility of performance and commercial frustration defenses in a failed real estate deal.

The parties in Ury v. DiBari, 2016 IL App (1st) 150277-U contracted for the sale and purchase of a (Chicago) Gold Coast condominium.  The contract called for a $55K earnest money payment and provided that the seller’s sole remedy in the event of buyer breach was retention of the buyer’s earnest money.

The seller sued when the buyer failed to close.  The buyer filed defenses saying it was impossible and commercially impractical for him to consummate the purchase due to a sudden serious illness he suffered right before the scheduled closing.  The Court rejected the defenses and entered summary judgment for the seller.  In doing so, the Court provides guidance on the nature and scope of the impossibility of performance and commercial frustration doctrines.

In the context of contract enforcement, parties generally must adhere to the negotiated contract terms.  Subsequent events – especially ones that are foreseeable – not provided for do not invalidate a contract.  The legal impossibility doctrine operates as an exception to the rule that holds parties to their contract obligations.

Legal impossibility applies where the continued existence of a particular person or thing is so necessary to the performance of the contract, it is viewed as an implied condition of the contract.  Death (of the person) or destruction (of the thing) excuses the other party’s performance.

The impossibility defense is applied sparingly and requires that a party’s performance be objectively impossible; not a subjective inconvenience or hardship.  Objective impossibility equates to “this can’t be done” while subjective impossibility is personal (“I cannot do this”) to the promisor.  A successful impossibility defense also requires the party to show it ” tried all practical alternatives available to permit performance.” (¶¶ 21-24, 29)

The defendant’s illness failed the law’s stringent test for objective impossibility.  His sickness was unique to him and therefore made closing only subjectively impossible.  The court pointed out that the condominium property was not destroyed and was still capable of being sold.

Another factor the court considered in rejecting the impossibility defense was that the defendant never tried to extend the closing date or sought accommodation for his illness.

The Court also discarded the defendant’s commercial frustration defense.  A party asserting commercial frustration must show that its performance under a contract is rendered meaningless due to an unforeseen change in circumstances.  Specifically, the commercially frustrated party has to demonstrate (1) the frustrating event was not reasonably foreseeable, and (2) the value of the party’s performance is totally destroyed by the frustrating cause.

Like with the failed impossibility defense, the claimed frustrating event – the buyer’s sickness – was foreseeable and did not destroy the subject matter of the contract.  Since the defendant’s weakened condition did not make the property worthless, there was no unforeseen frustrating event to give color to the buyer’s defense.

Afterwords:

1/ Impossibility of performance and commercial frustration are valid defenses but only in limited circumstances;

2/ Objective impossibility (“this can’t be done”) can relieve a party from contractual performance while subjective impossibility (“I can’t do this”) will not;

3/ Commercial frustration generally requires the contract’s subject matter be destroyed or rendered financially valueless to excuse a party from performance.