Tag: unclean hands

The ‘Procuring Cause’ Rule – Ill. Appeals Court Weighs In

The First District recently applied the ‘procuring cause’ doctrine to award the plaintiff real estate broker a money judgment based on a reasonable brokerage commission in Jameson Real Estate, LLC v. Ahmed, 2018 IL App (1st) 171534.

The broker provided the defendant with specifics concerning an “off market” car wash business and the land it sat on. The plaintiff later gave defendant a written brokerage contract for the sale of the car wash business and property that provided for a 5% sales commission.  The defendant never signed the contract.

After many months of negotiations, defendant orally informed plaintiff he no longer wished to buy the property and stopped communicating with plaintiff.

When plaintiff later learned that defendant bought the property behind plaintiff’s back, plaintiff sued to recover his 5% commission. The trial court directed a verdict for defendant on plaintiff’s express contract claims but entered judgment for plaintiff on his quantum meruit complaint count.  The money judgment was for an amount that was congruent with what a typical buyer’s broker – splitting a commission with a selling broker – would earn in a comparable commercial sale.

Quantum meruit, which means “as much as he deserves” provides a broker plaintiff with a cause of action to recover the reasonable value of services rendered but where no express contract exists between the parties.

A quantum meruit plaintiff must plead and prove (1) it performed a service to the benefit of a defendant, (2) that it did not perform the service gratuitously, (3) the defendant accepted the plaintiff’s service, and (4) no written contract exists to prescribe payment for the service.

The fine-line distinction between quantum meruit and unjust enrichment is that in the former, the measure of recovery is the reasonable value of work and material furnished, while in the unjust enrichment setting, the focus is on the benefit received and retained as a result of the improvement provided.  [¶ 61]

In the real estate setting, a quantum meruit commission recovery can be based on either a percentage of the sales price or the amount a buyer saved by excising a broker’s fee from a given transaction. [¶ 64]

Where a real estate broker brings parties together who ultimately consummate a real estate sale, the broker is treated as the procuring cause of the completed deal. In such a case, the broker is entitled to a reasonable commission shown by the evidence. A broker can be deemed a procuring cause where he demonstrates he was involved in negotiations and in disseminating property information which leads to a completed sale. [¶ 69]

The appeals court found the trial court’s quantum meruit award of $50,000, which equaled the seller’s broker commission and which two witnesses testified was a reasonable purchaser’s broker commission, was supported by the evidence. (Note – this judgment amount was less than half of what the broker sought in his breach of express contract claim – based on the unsigned 5% commission agreement.)

The Court rejected defendant’s ‘unclean hands’ defense premised on plaintiff’s failure to publicly list the property (so he could purchase it himself) and his lag time in asserting his commission rights.

The unclean hands doctrine prevents a party from taking advantage of its own wrong.  It prevents a plaintiff from obtaining legal relief where he is guilty of misconduct in connection with the subject matter of the litigation.  For misconduct to preclude recovery, it must rise to the level of fraud or bad faith. In addition, the misconduct must be directly aimed at the party against whom relief is sought.  Conduct geared towards a third party, no matter how egregious, generally won’t support an unclean hands defense.

Here, the defendant’s allegation that the plaintiff failed to publicly list the property, even if true, wasn’t directed at the defendant.  If anything, the failure to list negatively impacted the non-party property owner, not the defendant.

Afterwords:

In the real estate broker setting, procuring cause doctrine provides a viable fall-back theory of recovery in the absence of a definite, enforceable contract.

Where a broker offers witness testimony of a customary broker commission for a similar property sale, this can serve as a sufficient evidentiary basis for a procuring cause/quantum meruit recovery.

 

Illinois Credit Agreements Act and the Unclean Hands Defense – No Writing = Difficulty Defeating Breach of Guaranty Claim

handsAmerican Chartered Bank v. Cameron. 2014 IL App (1st) 132231-U, an unpublished First District case, glaringly illustrates the difficulty of defeating a lender’s breach of guaranty claim when the defenses are based on the lender’s oral promises.  The case also sheds light on the nature of the borrower-lender relationship and the contours of the unclean hands defense in the context of a breach of contract action.

The defendant guaranteed a commercial loan made to a business that defendant invested in. After the borrower defaulted, the plaintiff sued the corporate borrower and guarantor defendant and won summary judgment of nearly $150K. The guarantor appealed arguing the guaranty wasn’t enforceable.

Held: summary judgment for the bank affirmed. Defendant’s defenses are defeated by the Illinois Credit Agreements Act 815 ILCs 160/1, et seq. (ICAA) and the express language of the guaranty.

Reasons:

The Court rejected the guarantor’s defense based on the clear guaranty language that specified the bank didn’t have to first proceed against the loan collateral (the bank could immediately go after the guarantor).  The guaranty also had a non-reliance clause: the guarantor waived his reliance on verbal statements by the bank’s agents.

The ICAA also trumped the defenses.  The ICAA prevents a debtor (here, the guarantor) from suing or defending a suit under a “credit agreement” unless it’s in writing and signed by both creditor and debtor” 815 ILCS 160/2.

The ICAA defines a “credit agreement” as an agreement to lend money, extend credit or to delay or forbear repayment of money that is not for consumer (personal, family or household) purposes and that doesn’t involve credit cards. 815 ILCS 160/1(1).  ICAA Section 3(3) negates any claims based on a creditor’s promise to modify, amend or forbear from enforcing a credit agreement.  815 ILCS 160/3

Illinois courts construe the ICAA broadly and describe it as a strengthened Statute of Frauds (740 ILCS 80/0.01 et seq.) that bars all actions at all related to a credit agreement.  The ICAA case law makes clear that the statute prevents a borrower from alleging he relied on any oral statements of a lender.

Here, the guarantor’s claim that the bank agent made verbal misstatements to induce the execution of the guaranty was clearly governed and defeated by the ICAA.  The court also found the ICAA negated the defendant’s argument that the bank officer orally modified the guaranty terms.(¶¶ 33-35).

The defendant’s “unclean hands” defense also failed.  This defense, which posits that a litigant can’t take advantage of his own wrongful conduct, was premised on the claim that the bank breached a fiduciary duty to inform the defendant of the bank’s intention to enforce the guaranty if there was a loan default.  The Court rejected this defense for two reasons: first, the lender-borrower relationship is not a fiduciary one as a matter of law.  Additionally, unclean hands defense only applies in equity cases: it doesn’t affect legal (actions at law) claims. (¶¶ 38-40)

The other argument raised and rejected by the guarantor was that since he successfully opened a confessed judgment in favor of the bank, this was tantamount to a summary judgment-defeating fact question claimed that since the trial court found that he satisfied the standard for opening a confessed judgment under Rule 276, this was tantamount to a summary judgment-defeating fact question.

Afterwords:

Cameron illustrates the expansive applicability of the ICAA and how that statute will bar almost all claims and defenses related to a promise to lend money.  The case also clarifies that the unclean hands defense will only apply in an equitable case (e.g. an injunction, declaratory judgment suit, etc.); not in a garden-variety breach of contract claim for money damages.  Procedurally, the case’s lesson is that opening a confessed judgment involves different evidentiary standards than does showing a fact question sufficient to defeat a summary judgment motion.