oral contract – 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.

Federal Court Applies IL Tortious Interference Rules and the Statute of Frauds in Railcar Lease Dispute

The Northern District of Illinois recently discussed the pleading and proof elements of tortious interference with contract and the promissory estoppel doctrine in a commercial railcar lease dispute. In Midwest Renewable Energy, LLC v. Marquis Energy-Wisconsin, LLC 2014 WL 4627921 (N.D. Ill. 2014), the plaintiff sublessor of railcars sued the sublessee for damages after the plaintiff’s lessor terminated a lease (“Master Lease”) for the same cars. The sublessee moved for summary judgment.

Result: Motion granted. Plaintiff’s tortious interference and promissory estoppel claims are defeated.

Q: Why?

A: After the railcar lessor terminated the Master Lease with the plaintiff and started dealing directly with the sublessee, the plaintiff sued it’s sublessee for tortious interference and promissory estoppel. Granting summary judgment for the sublessee , the Court enunciated the key tortious interference with contract elements under Illinois law.

Tortious Interference with Contract

A tortious interference with contract plaintiff must show (1) the existence of a valid and enforceable contract between the plaintiff and another, (2) the defendants’ awareness of the contract, (3) the defendants’ intentional and unjustified inducement of a breach of the contract, (4) subsequent breach of the contract caused by the defendants’ wrongful conduct, and (5) damages. If a plaintiff fails to perform its contractual obligations, it can’t prove breach and its tortious interference claim will fail.

Here, the plaintiff’s tortious interference claim failed because it couldn’t show that its lessor breached the Master Lease. The plaintiff actually breached it by subletting it to defendant without the (Master) lessor’s knowledge and consent (the Master Lease required the lessor’s consent to any sublease or assignment) and also by failing to make several months’ of railcar lease payments. Since the lessor was able to terminate the lease on plaintiff’s breach, the plaintiff failed to establish that the lessor breached – an essential tortious interference element.

Promissory Estoppel

Next, the Court rejected the plaintiff’s promissory estoppel count. Plaintiff predicated this claim on the defendant/sublessee’s promise to buy out plaintiff’s rights under the Master Lease.

Promissory estoppel is a doctrine under which the plaintiff may recover without the presence of a contract. To prove promissory estoppel, a plaintiff must show (1) defendant made n unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff’s reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to its detriment. Aspirational negotiations or proposals don’t equate to a clear promise under the doctrine.

Plaintiff’s promissory estoppel claim failed because it couldn’t show a clear promise by the defendant to buy out plaintiff’s Master Lease rights. The evidence reflected that any lease buy-out talks were merely negotiations; not ironclad promises.

The promissory estoppel clam was also defeated by the statute of frauds – which requires certain contracts to be in writing. Under Section 2A of the UCC, lease contracts for goods (like railcars) have to be in writing unless the total lease payments are less than $1,000. 810 ILCS 5/2A–201(1). Where the statute of frauds applies, to a contract, it also requires an assignment of the contract to be in writing and signed by the party being sued.

Here, since the statute of frauds applied to the Master Leases and well over $1,000 was at stake, any assignment from plaintiff to defendant of the Master Lease had to be in writing. The Court rejected the plaintiff’s claim that several e-mail exchanges with the sublessee satisfied the statute’s writing requirement. The Court found that since the none of the emails contained the contract parties, subject matter or price term of the supposed assignment agreement, the sporadic emails didn’t meet the writing requirement. (*5).

Take-aways: The case is post-worthy for its discussion of the key tortious interference with contract elements and how important it is for a plaintiff to show that it complied with the contract it is claiming was wrongfully interfered with. The case also provides good summary of promissory estoppel elements and cements the proposition that the statute of frauds will still apply to bar the claim if the subject matter is one that has to be in writing under the law. Finally, this case amplifies the importance of careful lease drafting and review. Parties to lease agreements – whether for real estate or tangible goods – should be cognizant of assignment and sublease provisions. They almost always require the prime lessor’s knowledge and written consent.

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.

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