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Vol. 73, No. 2, February
2000 |
Written Contract
Alternatives
State Bar Contract Law Book Focuses on Basics
Sometimes words and conduct may be enough to constitute
a contract. Learn how to counsel, not console, your client when
"it's not in writing."
by Mark Hinkston
any of us have had clients who call when they have not been
paid by a customer for work or materials. Some of these clients
show up at the initial conference with no documentation, not
because they forgot it or could not locate it, but because there
was no written agreement from the start.
While written agreements are the ideal, unfortunately some
sole proprietors and small business owners do not use them. Many
have built their success on a "my word is my bond"
credo and a long chain of "handshakes." Some attribute
their aversion to written contracting to an inherent trust in
their customers, others believe that writing an agreement overcomplicates
the process, and some hope to get a lien on the customer's
property should problems arise.
If these clients stay in business long enough, it is inevitable
that they will get burned by more than one nonpaying customer.
When clients come to you hoping to collect, they do not want
you to grimace when they say, "It wasn't in writing."
You won't have to.
Wisconsin law affords plaintiffs a variety of remedies when
they have performed valuable services in contexts where there
has been no written agreement. This article focuses on 1) oral
agreements, 2) quantum meruit, 3) unjust enrichment, and 4) promissory
estoppel. Discerning critical distinctions between each of these
remedies can assist your client in recovering for valuable labor
and materials, despite the absence of a written agreement. (See
Figure 1: Choosing the Appropriate Cause of Action.)
Oral Agreements
Assume the following scenario: "Home" has a house
on a large lot that needs extensive lawn care and landscaping
services. Your client, "Grass," orally agrees with
Home to provide such services over the summer months. The parties
agree on the specific items of work to be accomplished and the
compensation, but do not reduce the agreement to writing. Imprudently,
Grass gets no initial retainer. Home will be on a lengthy overseas
trip during this period but assures Grass that he will be paid
in full upon his return. Grass fully performs in a professional
manner. Home returns from overseas to see an impeccably manicured
lot and lawn. But Home greatly exceeded his vacation budget and
the funds previously earmarked to pay Grass are gone. Home rebuffs
Grass's repeated requests for payment. Grass contacts you
to sue.
The first cause of action you should consider is breach of
oral contract. Wisconsin law recognizes oral agreements provided
there is a definite and certain promise with a meeting of the
minds as to essential terms.1
Grass and Home have a valid and
enforceable oral agreement if in fact there was assent as to
all material terms. However, do not be surprised if Home tries
to extricate himself by alleging that the agreement "wasn't
in writing" or it was a mere "agreement to agree."
"It Wasn't In Writing." While the Statute
of Frauds2 mandates that contracts in a wide variety of contexts
must be in writing, for the most part the statute provides no
defense in cases involving small projects, because contracts
that can be performed within one year need not be in writing.3
Because Grass's time for performance was over the summer
months (well under one year), Home's Statute of Frauds defense
will fail. Additionally, Grass's performance of the work
also vitiates a defense based on the Statute of Frauds because,
under the doctrine of "part performance," a court may
enforce a contract that does not comply with the statute if the
party seeking the contract's enforcement has rendered partial
performance.4 (Here, Grass has surpassed that threshold by rendering
full performance).
Written Agreement Contingency: "Agreement to Agree."
A second defense that oral agreement defendants often consider
is boiled down as: "We didn't agree to be bound unless
and until we both signed a written agreement." In other
words, the contention is that there was a mere "agreement
to agree" and the contractor should not be paid since he
imprudently performed work before an agreement was signed.5
To ascertain the success of this attempted defense, there
are two possibilities to consider. First, determine if during
negotiations the parties considered the details of the anticipated
agreement, discussing and settling them one by one, with the
understanding that their agreement was to be embodied in a formal
written document and that neither party was to be bound until
the document was executed.6 For example, perhaps Grass and Home
discussed the proposed services but Home told Grass that it was
contingent on Home's review and written acceptance of a
written proposal from Grass prior to any work being commenced.
If Home leaves on his trip having failed to execute a written
acceptance of the proposal, Grass commences the work at his own
risk and likely will lose on a claim for breach of oral contract.
Second, determine if the parties had come to an oral agreement
binding in itself even though it was anticipated that a written
agreement embodying its terms afterwards would be signed.7
In other words, the parties may have had a definite and certain
proverbial "handshake" agreement and intended that
it was binding regardless of the written memorialization to follow.
You must sift and winnow the facts to ascertain which category
applies to your client's situation.
In summary, for those who have entered into a definite and
specific oral agreement to perform services within one year,
where there has been no intent to sign a predicate written agreement,
recourse may be had under Wisconsin law for breach of oral contract.
Quantum Meruit versus Unjust Enrichment
Sometimes orally contracting parties do not go far enough
in their discussions, neglecting to agree on all of the material
terms. In cases where an oral contract may fail for indefiniteness
as to a material term, such as compensation, or because it succumbs
to one of the other defenses discussed above, one should consider
a remedy in the form of either quantum meruit or unjust
enrichment.
Distinct Remedies. Many lawyers mistakenly lump quantum
meruit and unjust enrichment together and use the terms interchangeably.8
Yet the remedies are separate and distinct.9 Quantum meruit,
Latin for "as much as he deserves," involves mutual
assent. The remedy is commonly known as "implied-in-fact
contract." Under this theory a plaintiff is allowed to recover
the reasonable value of the services.
With unjust enrichment, also called "quasi-contract"
or "implied-in-law contract," "there is no contract
in fact but the parties will be treated under the circumstances
as if there had been a contract."10 With unjust enrichment,
restitution is awarded based on the benefit received by the defendant.
In short, quantum meruit (implied-in-fact contract)
is based on mutual assent, with damages based on the value of
the services. Unjust enrichment is based on justice and equity
under circumstances where there has been no mutual assent, with
restitution based on the benefit received by the defendant. (See
Figure 2: Distinguishing Claims and Remedies.)
Implied-in-Fact Contract (Quantum Meruit): The Prima
Facie Elements. To recover under this theory, a plaintiff
must show that: 1) the defendant requested services, 2) the services
were performed, and 3) the services were valuable.11
Unlike an
express written or oral agreement, proof is circumstantial (hence
the name "implied-in-fact contract"). A plaintiff must
prove that the parties, "by their words, their conduct,
or course of dealing, came to a mutual agreement."12 Proof
of the prima facie elements creates a "rebuttable presumption
that the parties mutually intended fair payment."13 In the
lawn care hypothetical previously discussed, assume that Home
requested the lawn services and Grass performed, but no specific
price was discussed. Grass still could recover under an implied-in-fact
contract theory and recover the reasonable value of his services,
provided he proffers sufficient proof as to "reasonable
value."
A lodestar case on implied-in-fact contracts is Wojahn
v. National Union Bank,14 in which the Wisconsin Supreme
Court recognized a plaintiff's recovery under that theory
for services provided in supervising one of the bank's debtors.
There was no written agreement and the plaintiff had not even
submitted a bill for his services nor demanded payment prior
to commencement of suit. The court recognized the general rule
that "if a person performs valuable services for another
at that other's request, the law implies, as matter of fact,
the making of a promise by the latter and acceptance thereof
by the former to pay the one performing the service the reasonable
value thereof."15
Subsequent to Wojahn, Wisconsin appellate courts have
considered implied-in-fact contracts in a wide variety of contexts.
Some of the more fertile areas include claims for services rendered
by close relatives or coinhabitants,16 services performed by
experts at the behest of an attorney on behalf of a client in
and out of a litigation context,17
and services by consultants,18
architects,19
and contractors or subcontractors.20
Supporting Proof as to "Reasonable Value."
Obviously, a court will not randomly attribute a value to whatever
services a plaintiff performed or blindly accept a plaintiff's
generalization or estimate as to the value of services. A plaintiff
should not rely on "guesswork"21 or cobble together
a post hoc estimate based on noncontemporaneous notes or mere
recollection.22 One should be prepared to present specific evidence,
whether invoices or other documentation, reflecting the rate
and amount of time spent on the project. Depending on the nature
of the claim and services, it also may be necessary to proffer
evidence as to the customary rate for such services in the community.23
If a plaintiff in a quantum meruit action merely generalizes
the amount of time spent on a project, he or she will lose. (For
example, it is not advisable for Grass to testify when asked
how much time he spent on the project, "I think somewhere
between 20 and 100 hours").24
Unjust Enrichment: The Prima Facie Elements. "Mutual
assent," the foundation of an implied-in-fact contract (quantum
meruit) claim, is absent from a viable claim for unjust enrichment.
Unjust enrichment does not apply where the parties have entered
into an express contract.25 (Hence, it is somewhat of an illusion
to refer to unjust enrichment as "quasi-contractual"
in nature or label it a claim for "implied-in-law contract").
To succeed on a claim for unjust enrichment, a plaintiff must
show that: 1) he or she conferred a benefit, 2) the defendant
had knowledge or appreciation of the benefit, and 3) it would
be inequitable for the defendant to retain the benefit without
paying plaintiff its value.26 Merely because a plaintiff has
expended time and resources on a project does not automatically
entitle the party to recovery under unjust enrichment.27 Because
the focus in an unjust enrichment case is on the benefit received
from the plaintiff, a claim is not stated where no benefit has
been conferred28
or where the services are a gift.29
Reverting to our hypothetical, suppose Home left for his extended
vacation without having spoken with anyone about caring for his
lawn during his absence. Imagine Home's surprise months
later when he discovers that some kind soul mowed his lawn while
he was away. Yet imagine his shock when he discovers that the
same person (Grass), without notice to Home, chopped down several
majestic trees on Home's property. Imagine Home's further
shock when Grass later arrives to introduce himself and presents
Home with a hefty invoice for lawn care and tree-cutting services,
services which Home did not request or expect. Grass realizes
his mistake (he got the wrong address), but has the audacity
to insist that Home was benefited by his "valuable"
services. Home disagrees. Grass later sues on a claim for unjust
enrichment.
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