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 PDF.)

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.

As ridiculous as this scenario may be, there are many cases where contractors have performed work only to find out later that they performed the services for the wrong person or on the wrong property. In cases where the "inadvertent beneficiary" of the services indeed received a benefit, the contractor may rely on restitution via unjust enrichment as a way to get paid (assuming the court determines that the "equities" warrant such a result). In other words, a contractor may be compensated for a "good deed," albeit the result of mistake or imprudence, assuming that his or her acts have benefited the property owner. While Grass may have an argument that his lawn care services were valuable to Home, he cannot say the same about his felling of Home's personal forest. As such, the absence of benefit sounds the death knell for an unjust enrichment claim by Grass for the tree-cutting services.

Case Law Insight on Unjust Enrichment. A classic example of a hasty contractor's futile attempt to rely on unjust enrichment is set forth in Dunnebacke Company v. Pittman.³⁰ Dunnebacke initiated the action to foreclose on a subcontractor's lien against Pittman, a contractor, and the Gilligans, Chicago residents who owned the subject Kenosha County property abutting Lake Michigan. The Gilligans and Pittman had various discussions regarding the possibility of building a structure to prevent further erosion to the property. Although the Gilligans never gave Pittman the go-ahead to commence the work, when they traveled to the property one day they discovered that Pittman had constructed a seven-foot high, three-feet thick wall spanning 50 feet across the property's beach. The Gilligans, concerned that Pittman had built a "monstrosity", wanted it removed. The Gilligans cross-claimed against Pittman for damage to the property and removal costs.

At trial, although the court chided Pittman for proceeding with the work "without having something more, something to show for it," it granted judgment for Pittman based on unjust enrichment. The Wisconsin Supreme Court reversed, noting that the structure was built during the Gilligans' absence and, upon discovery of it, they did not wish to retain it and asked for its removal. The court noted that it would have been a different result if the Gilligans had been present during construction and made no protest or even if, upon discovery of the structure, they had retained it without protest.

As with quantum meruit, unjust enrichment has been applied in a variety of contexts. A recent unpublished decision of the Wisconsin Court of Appeals, Wilson v. Ogilvie,³¹ demonstrates its application in a unique, but unfortunate, situation of a love story gone sour. Wilson allowed her fiancé, Ogilvie, to build a garage (to store tools for his ceramic tile business) on two of her 22 acres. Wilson deeded the property to Ogilvie for no compensation and assisted Ogilvie in constructing the structure. Ogilvie's initially humble thoughts of a mere garage were morphed into more ambitious plans of a shop with an attached residence (ultimately valued at $130,000). After completion, Ogilvie moved into the new residence by himself, the wedding bells were quelled, and the couple broke off their engagement. If there was any question as to whether the relationship could be resurrected, that was answered (in the negative) when Wilson sued Ogilvie for unjust enrichment.

The court of appeals affirmed the trial court's finding that Ogilvie was unjustly enriched in the amount of $14,500, the appraised value of the two acres when vacant. The appeals court noted the trial court's observance that there was no dispute that a benefit was conferred on defendant and that the defendant knew of, and appreciated, the benefit. The court also referenced the trial court's observance "that the only consequence to Wilson at this point is that she now has a hostile neighbor. Her property was not enhanced by his building." The court rejected Ogilvie's argument that Wilson made a "gift that she now regrets," pointing out that the evidence at trial supported a conclusion that Wilson did not intend to make a gift of the property and that she never relinquished her dominion over the property, a necessary act to support a gift. The fact that Wilson deeded the property to Ogilvie was inconsequential to the court, noting the trial court's reliance on Wilson's testimony that she conveyed the property merely to aid financing of the project.

Unjust Enrichment Restitution: Focus on Benefit. With implied-in-fact contract, the damages focus is on the plaintiff and the reasonable value of the services rendered. With unjust enrichment, the damages focus is on the defendant and the amount of benefit received. Rendered versus received is the distinction.

A recent decision highlighting the measure of damages for unjust enrichment is W.H. Fuller Company v. Seater.³² Fuller sought to recover for grading and filling work done on Seater's property at the request of Seater's lessees. The trial court ruled that although there was no written or implied-in-fact contract between Seater and Fuller, there was a contract implied in law. It awarded damages in the amount of the value of Fuller's services, based on its itemized invoices. The court of appeals reversed, noting that the trial court improperly used the implied-in-fact contract measure. The appeals court noted that the proper measure of damages for a contract implied in law is "the value of the benefit [received] under the theory of unjust enrichment." This value "may include services rendered for the defendant, goods or merchandise received by the defendant, or improvements made to the defendant's real estate." It does not include plaintiff's lost profit. The court remanded and instructed the trial court to ascertain which of Fuller's services benefited Seater and the value of the services.

Supporting Proof as to Benefit Conferred. As with damages for implied-in-fact contracts, the unjust enrichment plaintiff should attempt to prove damages (that is, benefit to defendant) with reasonable, albeit not necessarily mathematical, certainty. An even more important caveat is that an unpaid service provider who contemplates an unjust enrichment claim should not let zealousness for payment cloud judgment and make it indifferent to what really transpired on a project.

Remember, the sine qua non of unjust enrichment is a benefit to the defendant. The foregoing cases reflect that if a contractor proceeds with work when an agreement is not in place, it does so at its own risk. The risk can be more than loss of pay for services. If it is unsuccessful on its unjust enrichment claim and it turns out that the work actually harmed the property (was a detriment rather than a benefit), the contractor risks owing money to the disgruntled property owner.³³

Promissory Estoppel

A fourth remedy that may be considered in the absence of a written agreement is promissory estoppel.

In Hoffman v. Red Owl Stores Inc.,³⁴ the Wisconsin Supreme Court recognized the cause of action for promissory estoppel, calling it "[a]n attempt by the courts to keep remedies abreast of increased moral consciousness of honesty and fair representations in all business dealings" and noting that it "supplies a needed tool which courts may employ in a proper case to prevent injustice."³⁵

The court stated that to make a claim under this cause of action, one must show: 1) a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, 2) the promise induced such action or forbearance, and 3) injustice can be avoided only by enforcing the promise.³⁶

In Hoffman, the court upheld the trial court's finding of promissory estoppel where the plaintiffs relied on Red Owl's promise to provide them with a franchise grocery store. In response to defendant's argument that "agreement was never reached on essential factors necessary to establish a contract between Hoffman and Red Owl," the court noted that the promise necessary to sustain a cause of action for promissory estoppel need not embrace all essential details of the transaction otherwise necessary to support a breach of contract action. An action for promissory estoppel is not equivalent to a breach of contract action.³⁷

Because it does not involve a contract, the Statute of Frauds is not a defense. Additionally, because damages for promissory estoppel are based on one's change of position or "reliance," lost profits are not recoverable.

Subsequent to Hoffman v. Red Owl, only a few reported decisions have dealt with a plaintiff's successful recovery under this cause of action. For example, in Cosgrove v. Bartolotta, ³⁸ the Seventh Circuit Court of Appeals upheld a jury's finding of promissory estoppel where a restaurant owner made a promise to make his attorney/business advisor part owner in a restaurant venture. In describing the type of "promise" necessary to sustain this cause of action, the court stated that while a "promise that is vague and hedged about with conditions may nevertheless have a sufficient expected value to induce a reasonable person to invest time and effort in trying to maximize the likelihood that the promise will be carried out," if one relies and acts "knowing that he is investing for a chance, rather than relying on a firm promise that a reasonable person would expect to be carried out, he cannot plead promissory estoppel."³⁹

In another recent Seventh Circuit Court of Appeals case, All-Tech Telecom Inc. v. Amway Corporation,⁴⁰ plaintiff sued for misrepresentation and promissory estoppel arising out of Amway's attempts to have All-Tech sell calling card telephones. The court held that All-Tech did not state a claim for promissory estoppel because the parties had a contract covering the various aspects of the business relationship. The court noted that promissory estoppel is a gap-filling remedy not available where there is an express contract between the parties and is not designed to give a party a second bite at the apple in the event it fails to prove a breach of contract.⁴¹

It is certainly difficult to describe a typical case of promissory estoppel. Its application often is problematic because the court must decide whether certain equitable factors weigh in favor of its application. This potentially explains its rare appearance in case law. While the claims of most service providers who have not contracted in writing are more likely to fall within the purview of implied-in-fact contract or unjust enrichment, promissory estoppel still should be considered when promises made to your client do not quite reach contract status.

Conclusion

Almost 50 years ago the Wisconsin Supreme Court stated in an implied-in-fact contract case:

"We cannot refrain from calling attention to the fact that a nominal sum spent for the drafting of an appropriate contract would have avoided this litigation. In the discussion necessary for the preparation of such a contract there would of necessity have been a meeting of the minds of the parties on the details before it could have been reduced to writing. The parties might have failed to agree on the details and there would have been no transaction between them, or the contract would have been one easily interpreted by the courts if necessary."⁴²

Mark R. Hinkston, Creighton 1988 cum laude, practices business litigation with DeMark, Kolbe & Brodek, Racine. He is admitted to practice in Wisconsin, Missouri, Kansas, and Colorado.

The causes of action discussed in this article often are remedies for bad planning and premature performance where there has been a failure to communicate. Yet your knowledge of the different remedies available to unpaid clients can soothe your clients' concerns when they neglected or refused to put an agreement in writing and instead relied upon potentially more tenuous indicia of an agreement, such as oral "negotiations" or a handshake.

Endnotes

¹ Witt v. Realist Inc., 18 Wis. 2d 282, 297, 118 N.W.2d 85, 93 (1962).

² Wis. Stat. § 241.02.

³ Wis. Stat. § 241.02 (a).

⁴ See Stan's Lumber Inc. v. Fleming, 196 Wis.2d 554, 570, 538 N.W.2d 849, 855 (Ct. App. 1995)(citing Toulon v. Nagle, 67 Wis. 2d 233, 248-49, 226 N.W.2d 480, 488-89 (1975)).

⁵ See Witt, supra note 1, at 298, 118 N.W.2d at 94.

⁶ See Gruen Indus. v. Biller, 608 F.2d 274 (7th Cir. 1979). See also Johann v. Milwaukee Elec. Tool Corp., 270 Wis. 573, 589, 72 N.W.2d 401, 410 (1955).

⁷ See Johann, supra note 6, at 589, 72 N.W.2d at 410. See also Leggett & Co. v. West Salem Canning Co., 155 Wis. 462, 469, 144 N.W. 969, 972 (1914).

⁸ See, e.g., CleanSoils Wisconsin Inc. v. Wisconsin Dept. of Transp., 229 Wis. 2d 600 n.8, 599 N.W.2d 903 n.8 (Ct. App. 1999).

⁹ In Ramsey v. Ellis, 168 Wis. 2d 779, 785, 484 N.W.2d 331, 333-34 (1992), Chief Justice Heffernan succinctly distinguished the two causes of action.

¹⁰ Arjay Invest. Co. v. Kohlmetz, 9 Wis. 2d 535, 539, 101 N.W.2d 700, 702 (1960).

¹¹ Theuerkauf v. Sutton, 102 Wis. 2d 176, 185, 306 N.W.2d 651, 658 (1981).

¹² Id.

¹³ Id.

¹⁴ 144 Wis. 646, 129 N.W. 1068 (1911).

¹⁵ Id. at 667, 129 N.W. at 1077.

¹⁶ See, e.g., In re Estate of Steffes, 95 Wis. 2d 490, 290 N.W.2d 697 (1980); Ward v. Jahnke, 220 Wis. 2d 539, 583 N.W.2d 656 (Ct. App. 1998).

¹⁷ See, e.g., Theuerkauf, supra note 11; Wisconsin Title Serv. v. Kirkland & Ellis, 168 Wis. 2d 218, 483 N.W.2d 275 (Ct. App. 1992).

¹⁸ See, e.g., Ramsey, supra note 9.

¹⁹ See Harper, Drake & Assoc. v. Jewett & Sherman Co., 49 Wis. 2d 330, 182 N.W.2d 551 (1971).

²⁰ See, e.g., Puttkammer v. Minth, 83 Wis. 2d 686, 266 N.W.2d 361 (1978); S & M Rotogravure Serv. Inc. v. Baer, 77 Wis. 2d 454, 252 N.W.2d 913 (1977).

²¹ See Gename v. Benson, 36 Wis. 2d 370, 376, 153 N.W.2d 571, 574 (1967).

²² See Harper, supra note 19, at 343, 182 N.W.2d at 555 (noting that the plaintiff "worked these hours in July through September of 1966. It was not until August of 1967, a year later, that he wrote them down.").

²³ See Mead v. Ringling, 266 Wis. 523, 529, 64 N.W.2d 222, 225 (1953).

²⁴ See, e.g., Rowe v. Attorneys' Liability Assurance Soc'y, Dist. I Ct. App., No. 97-2953 (May 18, 1999)(unpublished decision) (affirming trial court's denial of implied-in-fact contract claim where attorney "estimated that he devoted between twenty and five hundred hours to the case"). The reader is reminded that unpublished opinions are of no precedential value and may not be cited as precedent or authority. Wis. Stat. § 809.23(3).

²⁵ Greenlee v. Rainbow Auction/Realty Co., 202 Wis. 2d 653, 671, 553 N.W.2d 257, 265 (Ct. App. 1996).

²⁶ Watts v. Watts, 137 Wis. 2d 506, 405 N.W.2d 303 (1987).

²⁷ See Halverson v. River Falls Youth Hockey Ass'n, 226 Wis. 2d 105, 115-16, 593 N.W.2d 895, 900 (1999) (citing Management Computer Servs. v. Hawkins, Ash, Baptie & Co., 206 Wis.2d 158, 188-89, 557 N.W.2d 67, 80 (1996)(stating "[a] plaintiff's expenditure alone does not, however, support an unjust enrichment claim")).

²⁸ See Halverson, supra note 7, at 118, 593 N.W.2d at 900.

²⁹ Brown v. Thomas, 127 Wis. 2d 318, 326-27, 379 N.W.2d 868, 872 (Ct. App. 1985).

³⁰ 216 Wis. 305, 257 N.W. 30 (1934).

³¹ Dist. III Ct. App., No. 98-2976 (May 25, 1999)(unpublished decision). See Wis. Stat. § 809.23(3).

³² 226 Wis. 2d 381, 595 N.W.2d 96 (Ct. App. 1999).

³³ See, e.g., Dunnebacke, supra note 30, at 312-13, 257 N.W.2d at 33; Fuller, supra note 32, at 388 n.3, 595 N.W.2d at 100 n.3.

³⁴ 26 Wis. 2d 683, 133 N.W.2d 267 (1965).

³⁵ Id. at 695-96, 133 N.W.2d at 273.

³⁶ Id. at 698, 133 N.W.2d at 275.

³⁷ Id. at 697-98, 133 N.W.2d at 275.

³⁸ 150 F.3d 729 (7th Cir. 1998).

³⁹ Id. at 733.

⁴⁰ 174 F.3d 862 (7th Cir. 1999).

⁴¹ Id. at 869. But see Kramer v. Alpine Valley Resort, 108 Wis. 2d 417, 425, 321 N.W.2d 293, 297 (1982)(stating that while existence of a contract will bar a promissory estoppel claim, "this is subject to an exception where the contract fails to address the essential elements of the parties' total business relationship").

⁴² Mead, supra note 23, at 529a, 64 N.W.2d at 226.

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