Plenty of us have had clients call because they have not been paid for work or materials by a customer. Some of these clients arrive at the first meeting without any paperwork, not because they forgot or couldn't find it, but because there was no formal agreement from the beginning.
Despite the fact that written agreements are desirable, some sole proprietors and small business owners do not use them. Many have founded their fortunes on the principle of "my word is my bond" and a long string of "handshakes." Some blame their aversion to written contracts on a lack of confidence in their clients, while others feel that drafting an agreement overcomplicates the operation, and still others hope to obtain a lien on the customer's property in the event of an issue.
Let's shake hands. It is unavoidable for these clients to be burned by more than one nonpaying customer if they remain in business long enough. Clients don't want you to frown when they say, "It wasn't in writing," when they come to you hoping to collect. You would not be necessarily need to do so.
When claimants provide valuable services in the absence of a signed arrangement, Wisconsin law provides them with a number of remedies. Oral agreements, quantum meruit, unfair enrichment, and promissory estoppel are all discussed in this article. Despite the lack of a formal agreement, recognizing important differences in both of these solutions will assist your client in recovering for valuable labor and materials.
This article discusses the specifics of Wisconsin contracts and what instances they are legally binding. We discuss the following types of contracts:
- Oral Contracts
- Unjust Enrichment vs. Quantum Meruit Contracts
Oral Contracts
Breach of oral contract is the first cause of action you should remember. Oral agreements are recognized by Wisconsin law if there is a definite and assured promise and a meeting of minds on key terms.
"This wasn't written down." While the Statute of Frauds requires contracts to be in writing in a number of situations, the statute offers no protection in cases involving minor projects because contracts that can be completed within a year do not need to be in writing.
"Agreement to Agree." In other words, the argument is that there was just an "agreement to agree" and that the contractor could not be compensated for doing work until the agreement was signed.
There are two options to consider when determining the effectiveness of this attempted defense. First, see how the parties discussed and settled the particulars of the expected agreement one by one during talks, with the expectation that their agreement would be embodied in a structured written contract and that no party would be bound before the document was signed.
Second, decide if the parties reached an oral agreement that was binding in and of itself, even though it was expected that a formal agreement enshrining its terms would be signed later. In other terms, the parties could have had a verbal "handshake" arrangement that they intended to be enforceable regardless of the written memorialization that would follow.
In summary, under Wisconsin law, those who have entered into a clear and definite oral agreement to provide services within one year with no intent to sign a predicate written agreement may have recourse for violation of oral contract.
Unjust Enrichment vs. Quantum Meruit
Orally contracting parties occasionally do not go far enough in their negotiations, failing to agree on all material terms. In situations where an oral contract fails due to indefiniteness as to a material term, such as reimbursement, or because of one of the other defenses discussed above, one should accept quantum meruit or unjust enrichment as a remedy.
Remedies that are special. Many lawyers conflate the words quantum meruit and unfair enrichment and use them interchangeably. Nonetheless, the treatments are distinct and separate. Quantum meruit, which means "as much as he deserves" in Latin, entails reciprocal agreement. "Implied-in-fact contract" is the common name for this solution. A plaintiff will recover the fair value of the services under this principle.
"There is no contract in reality, but the parties would be treated as though there had been a contract," says unjust enrichment, also known as "quasi-contract" or "implied-in-law contract." Restitution for wrongful enrichment is determined by the benefit earned by the defendant.
In a nutshell, quantum meruit (implied-in-fact contract) is based on mutual assent, with damages determined by the value of the services provided. In the absence of mutual consent, unjust enrichment is founded on fairness and equity, with compensation based on the value gained by the defendant.
The Prima Facie Elements of an Implied-in-Fact Contract (Quantum Meruit). A plaintiff must prove that: 1) the defendant demanded services, 2) the services were performed, and 3) the services were useful to recover under this theory. Proof is circumstantial, unlike an express written or oral agreement (hence the name "implied-in-fact contract"). A plaintiff must show that the parties "came to a mutual understanding through their terms, actions, or course of dealing." The prima facie elements must be established in order to build a "rebuttable presumption that the parties jointly intended fair payment."
Proof that "Fair Value" exists. Obviously, a court would not assign a value to any services a plaintiff provided at random, nor will it endorse a plaintiff's generalization or estimation of the value of services without question. A plaintiff does not depend on "guesswork" or assemble a post-hoc calculation from non-contemporaneous notes or memory. One should be prepared to present detailed evidence, such as invoices or other documents, that reflects the project's rate and length. It may also be appropriate to provide proof of the community's standard rate for certain services, depending on the nature of the claim and services. A plaintiff in a quantum meruit action would lose if he or she simply generalizes the amount of time spent on a project.
The Prima Facie Elements of Unjust Enrichment A viable argument for unjust enrichment lacks "mutual assent," the basis of an implied-in-fact contract (quantum meruit) claim. When the parties have entered into an express arrangement, unjust enrichment does not apply.
A plaintiff must prove that: 1) he or she conferred a profit, 2) the defendant had knowledge or understanding of the benefit, and 3) it would be inequitable for the defendant to keep the benefit without paying plaintiff its worth to win an unfair enrichment lawsuit. Simply because a plaintiff has invested time and money in a project does not entitle the plaintiff to undue enrichment compensation. Since the emphasis of an unfair enrichment case is on the benefit received by the applicant, no argument is made where no benefit has been conferred or where the services are provided as a gift.
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To learn about “What Is Needed for A Contract to Be Legally Binding? | Illinois Contract Law,” click here.
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