course of performance – Paul Porvaznik

15-Year ‘Course of Dealing’ Clarifies Oral Agreement for Tax Sale Notices – IL First Dist.

The would-be tax deed buyer in Wheeler Financial, Inc. v. Law Publishing Co., 2018 IL App (1st) 171495 claimed the publisher defendant’s erroneous sale date in a required tax sale notice thwarted its purchase of a pricey Chicago property.

A jury found for the publisher defendant on the buyer’s breach of oral contract claim since the plaintiff failed to properly vet the draft “Take Notice” (the statutory notice provided by a tax deed applicant that gives notice to the owner) supplied by the defendant before publication. The plaintiff appealed.

Affirming the jury verdict, the First District discusses the nature of express versus implied contracts, the use of non-pattern jury instructions and when course of dealing evidence is admissible to explain the terms of an oral agreement.

Course of dealing – Generally

There was no formal written contract between the parties. But there was a 15-year business relationship where the plaintiff would send draft tax deed petition notices to the defendant who would in turn, publish the notices as required by the Illinois tax code. This decade-and-a-half course of dealing was the basis for jury verdict for the publisher defendant.

Section 223 of the Restatement (Second) of Contracts defines a course of dealing as a sequence of previous conduct between parties to an agreement “which is fairly regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.”

A course of dealing “gives meaning to or supplements or qualifies their agreement” and can be considered when determining the terms of an oral contract. Where contract terms are uncertain or doubtful and the parties have – by their conduct – placed a construction on the agreement that is reasonable, such a construction will be adopted by the court. [¶ ¶ 77-78]

Course of Dealing – The Evidence

Here, the course of dealing proof was found in both trial testimony and documents admitted in evidence.

At trial, current and former employees of the publisher defendant and plaintiff’s agent all testified it was the parties’ common practice for defendant to first provide draft Take Notices to plaintiff for its review and approval prior to publication. E-mails introduced in evidence at trial corroborated this practice.

In addition, plaintiff’s affiliated tax lien company’s own handbook contained a published policy of plaintiff reviewing all Take Notices for accuracy before the notices were published. [¶¶ 35, 83-85]

The appeals court agreed with the jury that the defendant sufficiently proved the parties course of dealing was that defendant would give plaintiff a chance to review the Take Notices before publication. And since the plaintiff failed to adhere to its contractual obligation to review and apprise the defendant of any notice errors, plaintiff could not win on its breach of contract claim. (This is because a breach of contract plaintiff’s prior material breach precludes it from recovering on a breach of contract claim.)

Jury Instructions and A Tacit Exculpatory Clause?

Since no Illinois pattern jury instruction defines “course of dealing,” the trial court instructed the jury based on Wald v. Chicago Shippers Ass’n’s (175 Ill.App.3d 607 (1988) statement that a prior course of dealing can define or qualify an uncertain oral agreement. [¶ 96] Since Wald accurately stated Illinois law on the essence and reach of course of dealing evidence, it was proper for the jury to consider the non-pattern jury instruction.

The court then rejected plaintiff’s argument that allowing the legal publisher to avoid liability was tantamount to creating an implied exculpatory clause. The plaintiff claimed that if the publisher could avoid liability for its erroneous notice date, the parties’ agreement was illusory since it allowed the defendant to breach with impunity.

The court disagreed. It held that the parties’ course of dealing created mutual obligations on the parties: plaintiff was obligated to review defendant’s Take Notices and advise of any errors while defendant was required to republish any corrected notices for free. These reciprocal duties placed enforceable obligations on the parties.

Afterwords:

Where specifics of an oral agreement are lacking, but the parties’ actions over time plainly recognize and validate a business relationship, a court will consider course of dealing evidence to give content to the arrangement.
Where course of dealing evidence establishes that a breach of contract plaintiff has assumed certain obligations, the plaintiff’s failure to perform those requirements will doom its breach of contract claim.

Missing “Course Of Dealing” Evidence Dooms Wedding Dress Seller on Summary Judgment – IL ND

In a Memorandum Opinion and Order that quotes Neil Sedaka and Taylor Swift in its footnotes, the District Court in House of Brides, Inc. v. Angelo, 2016 WL 698093 (N.D.Ill. 2016), examines the quantity and quality of evidence required to win a summary judgment motion.

The plaintiff sold wedding clothes on-line and in retail stores and the defendant was the plaintiff’s main supplier. The plaintiff sued the dress maker in state court for breach of contract claiming many of the dresses were defective or shipped later than promised.

After it removed the case to Federal court, the defendant counter-sued the plaintiff for unpaid invoices. The defendant moved for summary judgment on its counterclaims as well as on plaintiff’s claims.

Partly siding with the defendant, the court discussed some common Uniform Commercial Code (UCC) claims and defenses and the required elements of a summary judgment affidavit.

The UCC governs contracts for the sale of goods and wedding dresses constitute goods under the UCC. A seller who delivers accepted goods to a buyer can sue the buyer for the price of the goods accepted along with incidental damages where a buyer fails to pay for the goods. 810 ILCS 5/2-709.

In a goods contract, written contract terms can be explained or supplemented by a “course of performance, course of dealing, or usage of trade.” However, written terms cannot be contradicted by evidence of a prior agreement or an oral agreement made at the same time as the written one by the parties.

Here, the plaintiff argued that the course of dealing showed that defendant routinely accepted late payments and so defendant’s “net 30” invoice language was excused.

The court rejected this argument. It held that avoiding the 30-day payment deadline was a material change that would have to be in writing since the Statute of Frauds governs contracts for the sale of goods exceeding $500 and the dresses involved in this suit easily eclipsed that value.

The court also rejected the plaintiff’s set-off defense against the defendant’s breach of contract counterclaim since a set-off must relate to the same contract being sued on (the court’s example: a seafood buyer can’t set off the price of frogs’ legs because the seller previously sent bad fish in a previous order)

Next, the court struck the plaintiff’s affidavit in support of its breach of implied warranty of merchantability claim on the basis of hearsay.

In Federal court, an affidavit in support of or opposing summary judgment must be based on personal knowledge, show the witness’s competence and constitute admissible evidence. Conclusory statements or affidavit testimony based on hearsay is inadmissible on summary judgment.

The plaintiff’s affidavit testimony that there were dress defects that required refunds was too vague to survive defendant’s summary judgment motion. This was because no employee stated that he/she personally issued any refunds or had first-hand knowledge of any dress defects that warranted a refund.

What’s more, the seller failed to offer any authenticated business records that showed either the claimed dress defects or the refund amounts. Without admissible evidence, the plaintiff seller failed to challenge the defendant’s breach of contract claim and the court awarded summary judgment to the defendant.

Afterwords:

1/ This case shows importance of furnishing admissible evidence when challenging summary judgment;

2/ Hearsay evidence in a summary judgment affidavit will be rejected;

3/ Course of performance or course of dealing can augment or explain written contract terms but cannot contradict them;

4/ A set-off defense must pertain to contract being sued on instead of a separate agreement;

Account Stated and Course of Dealing: Illinois Law

STOPS Enterprises, LLC v. United Medical Equipment Co., 2014 WL 2699723 (N.D. IL 2014), examines how the parties’ course of dealing defines an oral contract and analyzes the account stated remedy in a case involving unpaid invoices for medical transportation services.

Under a series of oral agreements, plaintiff would pick up and give rides to the defendant’s clients in exchange for the defendant paying the plaintiff its transportation and wait time rates.

Over a three-year period, defendant fell behind in its payments and plaintiff sued to recover about $185,000 in unpaid invoices. The court granted the plaintiff summary judgment on its breach of contract and account stated counts.

Result: Affirmed.

Reasoning:

There was no factual dispute that the plaintiff established defendant’s breach of an oral contract. In the oral contract setting, the parties course of dealing or course of performance gives content to the specifics of an agreement.

The defendant argued that the plaintiff’s damage claim for “wait time charges” (about $30,000 of the claimed damages) should be stricken since there was no meeting of the minds on this point. The court quickly rejected this argument; noting that the parties course of performance – shown by three years of plaintiff charging and defendant paying wait time charges – clearly established that these charges were a material and agreed term of the parties’ oral contract. (*5-6).

The Court also held that even if there was no express contract, the plaintiff established an account stated. In Illinois, an account stated is a determination of the amount of an existing debt combined with a tacit promise to pay that debt.

When a plaintiff issues a statement of account to a defendant and the defendant retains the statement without objection within a reasonable amount of time, the law deems this as the defendant’s acknowledgement of the validity of the statement’s accuracy.

The court will infer a meeting of the minds (as to the amounts owed) from the defendant’s failure to object to a statement of account within a reasonable time. (*7).

Here, the plaintiff sent multiple e-mails requesting payment from defendant and the defendant sent numerous return e-mails acknowledging and promising to pay the debt.

The defendant also never objected to the plaintiff’s invoices and made partial payments to them over a several-month period. The court found that by its actions, the defendant conceded the validity of plaintiff’s invoices.

The court further observed that for almost three years before its default, the defendant regularly paid plaintiff’s invoices without incident. (*8).

The Court granted plaintiff’s claim for nearly $14,000 in prejudgment interest. Section 2 of the Illinois Interest Act (815 ILCS 205/2) allows a creditor to recover prejudgment interest at the rate of 5% on “instruments of writing.” The party claiming interest must show that the money amount owed is an easily calculable (“liquidated”) amount or easy computable.

Illinois case law specifically includes unpaid invoices within the instruments of writing definition. Because of this, the Court allowed the plaintiff to recover interest on the unpaid invoices measured from 30 days after the plaintiff stopped providing ride services to the defendant. (*10).

Take-aways:

(1) the parties’ course of performance provides evidence of oral contract terms; (2) a failure to dispute invoices can lead to an account stated; (3) FRE 408 will not bar statements or admissions if they were made before an actual dispute formed; (4) pre-judgment interest will apply to an oral contract.

As long as there are unpaid invoices or other documents to show a readily computable sum, a plaintiff can tack on annual interest of 5% to the judgment amount and to his damage claim.

Share this:

Share this:

Share this: