Tag: quasi-contract

Implied-in-Law Contracts Versus Express Contracts: “Black Letter” Basics

Tsitiridis v. Mahmoud, 2015 IL App (1st) 141599-U pits a taxi medallion owner against a medallion manager in a breach of contract dispute.  Plaintiff pled both express and implied contract theories against the medallion manager based on an oral, year-to-year contract where the plaintiff licensed the medallions to the defendant (who used them in his fleet of cabs) for a monthly fee.  Under the agreement, the defendant also assumed responsibility for all its drivers’ traffic and parking violations and related fines.

When the defendant failed to pay its drivers’ traffic fines, plaintiff covered them by paying the city of Chicago about $60K.  Plaintiff then sued the defendant for reimbursement.

After the trial court dismissed the complaint on the defendant’s motion, the medallion owner plaintiff appealed.

The First District partially agreed and disagreed with the trial court. In doing so, it highlighted the chief differences between express and implied-in-law contracts and the importance of a plaintiff differentiating between the two theories in its Complaint.

A valid contract in Illinois requires an offer, acceptance and consideration (a reciprocal promise or some exchange of value between the parties).

While the medallion contract involved in this case seemed factually unorthodox since it was a verbal, year-to-year contract, the plaintiff alleged that in the cab business, it was an “industry standard” agreement.  Plaintiff alleged that the agreement was a classic quid pro quo: plaintiff licensed the medallions to the defendant who then used the medallions in its fleet of cabs in exchange for a monthly fee to the plaintiff.

Despite the lack of a written agreement, the court noted that in some cases, “industry standards” can explain facially incomplete contracts and save an agreement that would normally be dismissed by a court as indefinite.

The plaintiff’s complaint allegations that the oral medallion contract was standard in the taxicab industry was enough to allege a colorable breach of express contract claim. As a result, the trial court’s dismissal of the breach of oral contract Complaint count was reversed.

The court did affirm dismissal of the implied contract claims, though.   It voiced the differences between implied-in-law and implied-in-fact contracts.

An implied-in-law contract or quasi-contract arises by implication and does not depend on an actual agreement.   It is based on equitable concerns that no one should be able to unjustly enrich himself at another’s expense.

Implied-in-fact contracts, by contrast, are express contracts.  The court looks to the parties’ conduct (instead of the contract’s language) and whether the conduct is congruent with a mutual meeting of the minds concerning the pled contract terms.  If there is a match between alleged contract terms and the acts of the parties, the court will find an implied-in-fact contract exists.

Illinois law is also clear that an implied-in-law contract cannot co-exist with an express contract claim.  They are mutually exclusive.  While Illinois does allow a plaintiff to plead conflicting claims in the alternative, a plaintiff cannot allege a breach of express contract claim and an implied-in-law contract one in the same complaint.

Since the plaintiff here incorporated the same breach of express contract allegations into his implied-in-law contract count, the two counts were facially conflicting and the implied-in-law count had to be dismissed.

Take-away:

Like quantum meruit and unjust enrichment, Implied-in-law contract can serve as a viable fallback theory if there is some factual defect in a breach of express contract action.

However, while Illinois law allows alternative pleading, plaintiffs should take pains to make sure they don’t incorporate their implied contract facts into their express contract ones. If they do, they risk dismissal.

This case also has value for its clarifying the rule that industry standards can sometimes inform a contract’s meaning and supply the necessary “gap fillers” to sustain an otherwise too indefinite breach of contract complaint count.

Talent Agency’s Implied In Law Contract Claim Survives Dismissal In Suit For TV Commercial Services

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Karen Stavins Enteprises, Inc. v. Community College District No. 508, 2015 IŁ App (1st) 150356 stands as a recent example of a plaintiff suing in quasi-contract – specifically, under an implied-in-law contract theory – to recover the reasonable value of unpaid acting services rendered in connection with a television commercial.

The plaintiff, a well-known Chicago talent agency, sued the City Colleges of Chicago’s corporate parent (“City Colleges”) when it failed to pay for the services of nine actors (just over $13K) booked by the plaintiff who starred in a commercial promoting the benefits of a City Colleges education.

The trial court dismissed the agency’s complaint on City Colleges’ Section 2-615 motion.  Plaintiff appealed.

Held: reversed.

Reasons:

City Colleges argued that the plaintiff’s claim failed because it didn’t comply with the procurement standards set forth in the Illinois Public Community College Act, 110 ILCS 805/3-27.1 – a statute that delineates specific requirements for a party entering a contract with a public educational entity.

Reversing the trial court’s dismissal, the appeals court first attacked City Colleges’ motion to dismiss on procedural grounds, noting that a Section 2-615 motion cannot be supported by affidavit or based on facts not contained within a complaint’s four-corners. 

Since City Colleges supported its motion with its agent’s affidavit testifying to some background facts concerning the creation of the commercial, the affidavit should have been excluded from consideration by the trial court.  (¶ 5).

Turning to the merits, the First District provides a useful primer on the salient rules governing implied in law contracts (“ILC”).

In Illinois, an ILC is not an express contract.  Instead, as the name suggests, it’s an implied promise by a recipient of services or goods to pay for them. 

An ILC presupposes that no actual agreement exists between parties, but the court imposes a duty to pay a reasonable value of the services in order to prevent unjust enrichment.  ILC’s “essence” is where a defendant voluntarily accepts a benefit from a plaintiff and fails to pay the plaintiff.

No ILC claim will lie, however, where there is an express contract (including a contract implied in fact) between the parties.  To state a valid ILC claim, a plaintiff must plead and prove specific facts that support the conclusion that a plaintiff conferred a benefit on a defendant who unjustly retained the benefit in violation of basic principles of fairness and good conscience.  Put another way, the plaintiff must establish he supplied valuable services to a defendant under circumstances where it’s unjust for the defendant to retain them without paying a reasonable value for the services.  (¶ 7).

Applying the operative ILC rules, the court found the talent agency plaintiff sufficiently pled that it booked actors to perform TV commercial services for City Colleges, that the actors weren’t working for free, and City Colleges’ refusal to pay.  Under Illinois pleading rules, this was enough of an ILC claim to survive City Colleges’ motion to dismiss.

Afterwords:

I’ve experienced how difficult it is to comply with a government entity’s (like a school, e.g.) byzantine contractual requirements.  Typically, you must follow the procurement rules to the letter or else risk case dismissal – usually for a failure to contract with an authorized party or to not adhere to the government’s contract award policies.  The practical problem I see is that your client usually won’t even know of the procurement policies until after a default and it’s time to sue.

Stavins provides a useful summary of the implied-in-law contract claim and illustrates how it can serve as a valuable fall-back or Plan B claim in situations where a contract formation defect precludes a breach of express contract action.

The important take-away is that a party who enters a business relationship with a unit of government can still recover for the reasonable value of its services even where it fails to strictly comply with the government contract award policies and procedures.

Sub-subcontractor Recovers From General Contractor Under Implied Contract/Unjust Enrichment Theory

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C. Szabo Contracting v. Lorig Construction, 2014 IL App (2d) 131328’s plaintiff  sub-subcontractor (it contracted with a subcontractor, tried to use unjust enrichment to recover against a twice-removed general contractor on a highway construction job.

The plaintiff installed underground pipes under a subcontract.  When the subcontractor didn’t pay, the Plaintiff sued the general contractor to recover over $200K worth of work under a breach of an implied contract theory.

The general contractor defended on the basis that there was no contractual relationship between it and plaintiff and that plaintiff’s sole remedy was against the subcontractor.

After a bench trial, the trial court entered judgment for the plaintiff for over $200,000 and the general contractor appealed.

Held: Affirmed

Reasons:  Siding with the plaintiff, the Court discussed the rules that govern whether and when a party can sue another for damages where there is no express contract between them:

–  Unjust enrichment is not a standalone cause of action but a remedy based on quasi-contract or contract implied-in-law

–  A contract implied-in-law is one in which there is no express contract but the court imposes a duty to prevent unjustness;

–  A plaintiff must show he furnished valuable services or materials and the defendant received them under circumstances making it unfair for the defendant to retain the benefits;

–  Normally an express contract will preclude quasi-contractual recovery.  So, if A has a contract with B, and B breaches, A can’t then sue C.  A can only look to B for recovery – even if C benefits from A’s services;

–  Simply because a third party benefits from a plaintiff’s work isn’t enough to make that third party responsible to the plaintiff;

–  In the construction context, where a contract is placed by an owner under a general contractor who has power to employ whom it wishes, the owner is justified in presuming that the work is being done for the contractor and not the owner;

–  The policy reasons that underlie the rule that only a party to a contract can sue and be sued for its breach is to avoid double-recovery for a plaintiff or forcing a non-party into a “forced exchange” (i.e. where a third party is paying for something it never received)

–   A plaintiff can sue a non-party to a contract in situations where the non-party entices or encourages a plaintiff to perform;

(¶¶ 25-41).

Finding for the plaintiff, the Second District ruled that principles of fairness weighed in favor of allowing recovery from the general contractor even though there was no contractual relationship between it and plaintiff.

The record showed that plaintiff and defendant had multiple oral and written conversations before, during and after completion of the job.  The plaintiff sent correspondence to the defendant concerning the scope of the project and invoices after the piping work was finished.  This evidence supported plaintiff’s theory that the defendant actively encouraged the plaintiff’s work.

The Court also noted that the general contractor received over $200K worth of plaintiff’s piping work for which it didn’t pay and was fully paid over $40M by the project owner.  (¶¶ 16, 42).

In addition, the Court found that there was no risk of double-recovery for the plaintiff since it was proceeding against the general contractor alone (not the subcontractor) and there was no risk of double liability for the defendant since it wasn’t being sued by the subcontractor who hired the plaintiff.  Combined, these factors created a climate that justified the defendant general contractor paying the plaintiff for its project pipe-installation work.

Afterwords:

The case presents a good example of a court refusing to rigidly follow strict rules of privity of contract and quasi-contract recovery in favor of a more relaxed, fact-specific standard.  The fact that the defendant was paid $40M and was refusing to pay $200K worth of piping work figured prominently in the Court’s decision.

Going forward, if an owner or contractor receives the benefit of what it contracted for, is fully paid and there’s evidence that the owner (or general contractor) communicated directly with the performing subcontractor (or sub-subcontractor) during the course of the subcontractor’s work, a strong argument can be made that a sub or sub-subcontractor can recover under an implied contract theory.