Tag: promissory estoppel

Federal Court Gives Illinois Primer on Personal Property Torts

The plaintiff in Peco Pallet, Inc. v. Northwest Pallet Supply Co., 2016 WL 5405107 sued a recycling company under various theories after their once harmonious business relationship imploded.

The plaintiff, a wooden pallet manufacturer, instituted a program where it offered to pay pallet recyclers like defendant a specific amount per returned pallet.  When the plaintiff announced it was going to cut the per-pallet payment rate, the defendant recycler balked and refused to return several thousand of plaintiff’s pallets.  The plaintiff sued and the defendant filed counterclaims.

In partially dismissing and sustaining the parties’ various claims, the Court offers a useful refresher on both some common and uncommon legal theories that apply to personal property.

Replevin and Detinue

The Illinois replevin statute, 735 ILCS 5/19-101, allows a plaintiff to try to recover goods wrongfully detained by a defendant.  The statute employs a two-step process involving an initial hearing and a subsequent trial.

Once a replevin suit is filed, the court holds a hearing to determine whether to issue a replevin order.  If at the hearing the plaintiff shows he most likely has a superior right to possession of the disputed property and is likely to prevail at trial, the court enters an order of replevin which requires the defendant release the plaintiff’s property pending the trial.  If the plaintiff later wins at trial, he can recover money damages attributable to the defendant’s wrongful detention of the property.

Closely related to replevin, a detinue claim also seeks the recovery of personal property and damages for its wrongful detention.  Unlike replevin however, there is no preliminary hearing in a detinue case pending final judgment.  Possession remains with the defendant until final judgment.

Since the purpose of the replevin and detinue remedies is the return of personal property, where a defendant returns plaintiff its property, the claims are moot.  Here, since the defendant returned the 17,000 pallets that were subjects of the replevin suit, the Court found that the replevin and detinue claims pertaining to the returned pallets were moot.

The court did allow, however, plaintiff to go forward on its detinue claim for damages related to defendant’s failure to account for some 30,000 pallets.

Conversion

A conversion plaintiff must prove (1) a right to property at issue, (2) an absolute and unconditional right to immediate possession of the property, (3) a demand for possession, and (4) that defendant wrongfully and without authorization, assumed control, dominion or ownership over the property.

The essence of conversion is wrongful deprivation, not wrongful acquisition.  This means that even where a defendant initially possesses property lawfully, if that possession later becomes unauthorized, the plaintiff will have a conversion claim.

Here, the plaintiff alleged that it owned the pallets, that it demanded their return and defendant’s refusal to return them.  These allegations were sufficient to plead a cause of action for conversion.

 

Negligence

The Court also sustained the plaintiff’s negligence claim against the motion to dismiss.  In Illinois, a negligence action arising from a bailment requires allegations of (1) an express or implied agreement to create a bailment, (2) delivery of property to the bailee in good condition, (3) bailee’s acceptance of the property, and (4) bailee’s failure to return the property or its returning the property in damaged condition.

The plaintiff sufficiently alleged an implied bailment – that defendant accepted the pallets and failed to return some of the pallets while returning others in a compromised state.  These allegations were enough for the negligence count to survive.

Promissory Estoppel

The Court found that the defendant sufficiently pled an alternative promissory estoppel counterclaim.  Promissory estoppel applies where defendant makes a promise that the plaintiff relies on to its detriment.  The pleading elements of promissory estoppel are (1) an unambiguous promise, (2) plaintiff’s reliance on the promise, (3) plaintiff’s reliance was expected and foreseeable by defendant, (4) plaintiff relied on the promise to its detriment.

A promissory estoppel claim can’t co-exist with a breach of express contract claim: it only applies where there is no contractual consideration.  Here, the defendant/counter-plaintiff alleged there was no express contract.  Instead, it claimed that plaintiff’s promise to pay anyone who returned the pallets motivated defendant to return thousands of them.  The court viewed these allegations as factual enough for a colorable promissory estoppel claim.

Tortious Interference with Contract and Business Expectancy

The court dismissed the defendant’s tortious interference counterclaims.  Each tort requires a plaintiff to point to defendant’s conduct directed at a third party that results in a breach of a contract.  Here, the defendant’s counterclaim focused on plaintiff’s own actions in unilaterally raising prices and altering terms of its earlier pallet return program.  Since defendant didn’t allege any conduct by the plaintiff aimed at a third party (someone other than counter-claimant, e.g.), the tortious interference claims failed.

Take-aways:

1/ Conversion action can be based on defendant’s possession that was initially lawful but that later becomes wrongful;

2/ A Promissory estoppel claim can provide a viable fall-back remedy when there is no express contract;

3/ Tortious interference claim must allege defendant’s conduct directed toward a third party (someone other than plaintiff);

4/Where personal property is wrongfully detained and ultimately returned, the property owner can still have valid detinue claim for damages.

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

trainThe 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.

 

 

 

 

 

The Statute of Frauds ‘One-Year Rule’ (IL Law Basics)

SOFThe Statute of Frauds (SOF) requires certain contracts to be in writing to be enforceable.  (See earlier post here).  740 ILCS 80/1; 810 ILCS 5/2-201 (UCC analog).

The SOF’s “one-year rule” posits that any contract that can’t possibly be performed within the span of one year from the date of making must be in writing.  The purpose of the one-year rule is to protect against stale memories and evidence.

Typical settings for the one-year rule defense include multi-year leases and “lifetime” employment contracts (i.e., plaintiff sues an employer claiming breach of a promise to employ the plaintiff for life).

In Chiappe-Kay v. Barthel, 2013 IL App (2d) 120975-U, the plaintiff sued the defendant after the defendant failed to transfer a Personal Seat License that allowed the defendant (and would now allow the plaintiff) to buy Chicago Bears season tickets for life.

The plaintiff sued for specific performance and defendant moved for summary judgment based on the one-year rule: the oral football tickets agreement was defeated because  it couldn’t be performed within the space of a year.

Siding with the defendant, the Court described the one-year rule’s purpose as barring actions “based upon nothing more than loose verbal statements.”  It held that the parties’ agreement couldn’t be performed within the space of a year since the agreement was that the plaintiff would receive season tickets for life based on defendant’s PSL. (¶ 16).

The Court also found that the one-year rule barred plaintiff’s claim because the Bears instituted a one-year ban on the transfer of PSLs when the Bears first issued the PSL to the defendant.  As a result, there was no way for the defendant to perform – by transferring the PSL – to the plaintiff within a one-year time span.  (¶¶ 19-21).

Farmers and Merchants v. Hulett, 2012 IL App (3d) 120022-U, involves an oral agreement between a former land trustee and the beneficiary for that beneficiary to rent a house (owned by the land trust) for the beneficiary’s lifetime.

When the successor trustee assumed control of the trust, it sent a notice terminating the tenancy and sued to evict the beneficiary tenant.  The tenant opposed the eviction suit and argued that he was allowed to live in the house for his lifetime.  The Court entered summary judgment for the successor trustee and found that the defendant’s claim to a lifetime tenancy was unenforceable since it wasn’t in writing.

The Court noted that the written land trust agreement was silent on the defendant’s right to occupy the house.  Because of this, the tenant had, at most, an oral lease agreement with the prior trustee.

In Illinois, an oral lease for a period exceeding a year – such as a lifetime lease – is treated as a year-to-year lease.  A year-to-year lease can be terminated on a landlord’s sixty-day written notice.  735 ILCS 5/9-205 (year-to-year lease is terminable on 60 days’ notice).

The Court found the successor timely terminated the oral lease under the Illinois forcible detainer statute.

Hulett also provides good reading on the topics of promissory estoppel (which usually is not an exception to the SOF) and equitable estoppel (which is). (¶¶ 14-15).

Promissory estoppel applies where someone takes action in reliance on a verbal promise by the defendant.  Equitable estoppel involves some element of calculated misconduct or deception by the defendant.