Implied contracts, contracts, and quantum meruit in failed deal: QUADRILLE BUSINESS SYSTEMS V. KENTUCKY CATTLEMEN’S ASSOCIATION, INC. (COA 12/28/2007)

CONTRACTS:  Business; contracts and quantum meruit
DATE RENDERED: 12/28/2007

Quadrille Business Systems claimed breach of contract, breach of good faith and fair dealing and breach of fiduciary duty against the Kentucky Cattlemen’s Association (Cattlemen’s), and the Circuit Court granted Cattlemen’s motion for summary judgment on all claims asserted but permitted Quadrille to submit a claim for quantum meruit to the jury. The jury returned a verdict for $22,093.50 in favor of Quadrille. COA affirmed the summary judgment but held that the trial court erroneously denied Cattlemen’s motion for directed verdict on the quantum meruit claim.

Cattlemen’s is a non-profit organization providing education, marketing, and communications with Kentucky cattle farmers and had submitted a proposal to the Kentucky Agricultural Development Baord for a marketing grant. Schoettmer learned the Board was to distributed tobacco settlement money and sought Board money to establish a cattle cooperative and computer tracking system for Kentucky cattle from birth to slaughter. Shoettner and his partners contacted Cattleman’s to set up a joint business relationship since a non-profit would obtain favorable greatment from the Board regarding matching funds for any grants. Schoettmer’s draft proposal included the beef network grant and the computer tracking proposal (that Quadrille would manage) with a combined request for over $10 million. The board indicated no grant would be approved except the Beef Network, and it was rewritten and a grant for $1.811 million was obtained. Quadrille then filed this action against Cattlemen’s.

COA held that Cattlemen’s had not entered into a binding contract with Quadrille for either Schoettmer’s work on the proposal or for the use of the grant funds. Instead, Schoettmer rendered his services in exchange for the opportunity to bootstrap Quadrille’s grant request to that of Cattlemen’s. Furthermore, the terms of the alleged contract are so indefinite that it cannot constitute a legally enforceable contract.

To be legally enforceable, an agreement must “contain definite and certain terms setting forth promises of performance to be rendered by each party.”

In Kentucky, Plaintiffs must show that an actual agreement existed between the parties with clear and convincing evidence. While the agreement need not cover every conceivable term of the relationship, it must set forth the “essential terms” of the deal. Schoettmer’s description of the alleged contract’s terms demonstrates its lack of specificity and definiteness. Notably absent are terms as to when and how the money would be distributed to the respective parties, the specific responsibilities of each party, and the organizational structure of the proposed businesses. A sound reason for the requirement that the terms of a contract be clear and definite is so that the court can measure the damages in the event of its breach.

Under Kentucky law, in the absence of an underlying contract, no covenant of good faith and fair dealing arises. Furthermore, Quadrille cannot maintain a claim based on breach of a fiduciary duty. A fiduciary relationship is “founded on trust or confidence reposed by one person in the integrity and fidelity of another and which also necessarily involves an undertaking in which a duty is created in one person to act primarily for another’s benefit in matters
connected with such undertaking.”

An ordinary business relationship or an agreement reached through arm’s length transactions “cannot be turned into a fiduciary one absent factors of mutual knowledge of confidentiality or the undue exercise of power or influence.”

Recovery under the theory of quantum meruit can be had regardless of the absence of an enforceable contract. A contract implied by law allows for recovery quantum meruit for another’s unjust enrichment. It is not based upon a contract but a legal fiction invented to permit recovery where the law of natural justice says there should be a recovery as if promises were made. The courts supply the fiction of the promise to permit the recovery. Furthermore recovery quantum meruit may be had irrespective of the intentions of the parties, and sometimes even in violation of them.

However, merely because work was performed that benefited another does not necessarily warrant recovery. The party proceeding under a quantum meruit theory must establish the following elements: 1. that valuable services were rendered, or materials furnished; 2. to the person from whom recovery is sought; 3. which services were accepted by that person, or at least were received by that person, or were rendered with the knowledge and consent of that person; and 4. under such circumstances as reasonably notified the person that the plaintiff expected to be paid by that person. 66 Am.Jur.2d Restitution and Implied Contracts §38 (2001).

While quantum meruit remains a theory for recovery, because of the structure and complexity of modern industrial society, it is not viable in all situations. The theory is not applicable, for instance, to insurance and real estate sales where the work performed is done in anticipation of a future benefit and not a direct cash payment.

In the case sub judice, the intent and understanding of the parties was that the work was not performed with expectation of payment. Schoettmer’s testimony was unequivocal that his work on the proposal was in hopes of obtaining the grant money to begin his business and that he specifically rejected Cattlemen’s offer of payment on an hourly basis. Under these circumstances, the trial court erred when it denied Cattlemen’s motion for a directed verdict.

Michael Stevens

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