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Municipality May Be Liable In Quantum Meruit Even Though Contract Is Void In Law, Court Says

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Sharp Thinking

No. 174     Perspectives on Developments in the Law from Sharp-Hundley, P.C.    November 2019

Municipality May Be Liable In Quantum Meruit Even Though Contract Is Void In Law, Court Says

A municipal body can be held liable under the equitable doctrines of quantum meruit and implied in law contracts even though its contract was void from the beginning, the Appellate Court in Chicago has held.

In Restore Constr. Co. v. Bd. of Ed. of Proviso Tp. H.S. Dist. 209, 2019 IL App (1st) 181580, the court said two contracts made by the defendant school district for repair of its campus following a fire were void because they had never been submitted to its board for approval.  However, the court said that the “finding that the agreements were void ab initio [from the beginning] did not preempt a claim based on a contract implied in law for the value of the work performed in reliance on the presumed agreements.”

            In so ruling, the court distinguished between contracts implied in law and contracts implied in fact.  It did not purport to overturn case law that voidness ab initio is fatal to a claim of contract implied in fact.

“A contract implied in law, or a quasi contract, is not a contract at all.  Rather, it is grounded in an implied promise by the recipient of services or goods to pay for something of value which it has received,” the court said.  “A quasi-contract, or contract implied in law, is one in which no actual agreement between the parties occurred, but a duty is imposed to prevent injustice. . . . The term quantum meruit means literally as much as he deserves and is an expression of the extent of liability on a contract implied in law. . . . It is predicated on the reasonable value of the services performed.”

“The parties have not cited, and we have not found, any case that holds that recovery under quantum meruit is barred where the intended contract with a municipal unit has been determined to be void ab initio,” the court continued.  “We decline to make such a holding for the first time here.  We find that allowing plaintiffs’ claims to proceed is consistent with principles of equity and the well-settled reasoning that a contract implied in law ‘exists independent of any agreement or consent of the parties’ and ‘no one may unjustly enrich himself at another’s expense.’”

Readers may see an inconsistency between Restore and 1550 MP Road LLC v. Teamsters Local Unions No. 700, 2019 IL 123046, discussed in Sharp Thinking No. 170 (July 2019).  In 1550, the Supreme Court said that a contract void for lack of capacity could not be enforced under the equitable doctrines of ratification and equitable estoppel, because “equitable doctrines such as ratification and equitable estoppel do not apply to a contract that is void ab initio.”  The “such as” part of that quote seems to say that all equitable doctrines are barred where the contract is void.  Restore stands squarely contrary to that inference.  Yet the appellate panel was aware of 1550 when it handed down Restore.  And the Supreme Court has denied leave to appeal the Restore decision.

No Right To Cure Under U.C.C. § 2-608(1)(b)

Where a buyer rightfully revokes acceptance under § 2-608(1)(b) of the Uniform Commercial Code he is not required to accord the seller an opportunity to cure, the Illinois Supreme Court held recently.

Specifically contrasting § 2-608(1)(b) with § 2-608(1)(a), the court noted the latter expressly required an opportunity to cure while the former did not.  Accettura v. Vacationland, Inc., 2019 IL 124285.

U.C.C. § 2-608(1)(b), which has been adopted verbatim in 810 ILCS 5/2 2-608(1)(b), provides that a buyer may revoke acceptance of a lot or commercial unit whose non-conformity impairs its value to him if he has accepted it “without discovery of such if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or the seller’s assurances.”  It thus does not contain the cure language included in § 2-608(1)(a), which is connected to § 2-608(1)(b) by the word “or”.

Noting the distinction, the court said the “plain language of the statute evinces the General Assembly’s intention to allow a buyer to revoke acceptance of a substantially impaired commercial unit under two separate and distinct circumstances.”  It said that “because we find this language plain,” it did not have to resort to extrinsic aids in interpreting the statute.

Financing Statement May Just Refer To Security Agreement

The “plain and ordinary meaning” of Illinois’ revised version of the Uniform Commercial Code allows a financing statement to “indicate” collateral by reference to the description in the underlying security agreement and does not require that that statement “contain” that description, the United States Court of Appeals for the Seventh Circuit held recently.

Acting in In re: I80 Equipment, LLC, 938 F.3d 866 (7th Cir. 2019), the court construed the provisions of revised 810 ILCS 5/9-502, which provides that a financing statement “indicate the collateral covered by the financing statement”.  Prior to 2001, the statute required that the financing statement “contain” a description of the collateral.  Noting the changed nomenclature, the court said a financing statement is an “abbreviation of the security agreement . . . . a streamlined paper to be filed for the purpose of giving notice to third parties of the essential contents of the security agreement”.

The financing statement in I80 purported to cover “(a)ll Collateral described in First Amended and Restated Security Agreement dated March 9, 2015 between Debtor and Secured Party”  and the bankruptcy court ruled that that was insufficient.  Relying upon the changed language and the way that other bankruptcy courts had construed § 9-502, the Seventh Circuit reversed.

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