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No Written Agreement? No Problem, Says NY Court


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1/14/2016
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Image:  iosphere/FreeDigitalPhotos.net

If you take an unreasonable position and refuse to pay for services that were rendered, you should be prepared to have a court rule against you.

And that's exactly what happened in John Anthony Rubino & Co. CPA v. Schwartz (a trial court decision that  previously appeared on the pages of the New York Law Journal, and which was later affirmed on appeal).

In Rubino, the plaintiff-accountant was retained to prepare financial projections for a proposed business venture. And he did it. But when the defendant abandoned the project, he contended that he didn't owe the plaintiff any money, because he only agreed to pay the plaintiff if the project went through.

Not surprisingly, the plaintiff-accountant had a different understanding; he believed that he was going to be paid for the work he did whether the project went through or not. Since there was no written contract, and the parties clearly did not have the same understanding (in legalese, a "meeting of the minds"), the Court was constrained to dismiss the plaintiff's breach of contract claim.

So, that was the end of it, right? No contract, no recovery?

Not quite.

Your Subjective, Unreasonable Belief That You Don't Need to Pay for Services Rendered Won't Fly

Despite the lack of a written agreement, the Court held that the plaintiff was still entitled to recover the reasonable value of the services that he rendered, which in legal terms is called "quantum meruit," (and occasionally, "unjust enrichment") because the Court held that the defendant's purported belief that he should not have to pay the accountant unless he decided to pursue this business venture went through was unreasonable as a matter of law.

Here's what the trial court stated:

"In the context of reasonableness, the court finds that Mr. Rubino's expectation payment for services at his regular hourly rate was reasonable. Dr. Schwartz's expectation that Mr. Rubino would only be paid for his services if the project was successful in attracting investors was unreasonable.

"It is based on an assumption that Mr. Rubino's payment for hourly services would be based on assuming all the risks of loss (no investors) but none of the benefits of success (no ownership interest in the business created)." 

(Emphasis supplied).

The moral of this story should be fairly obvious:

Just because you don't have a written contract doesn't mean that you can't recover your losses.



Category: Breach of Contract

Jonathan Cooper
Non-Compete, Trade Secret and School Negligence Lawyer

3 Comments to "No Written Agreement? No Problem, Says NY Court"

Bravo for freedom of speech, and bravo for freedom of contract. In the Netherlands the so called "contractsvrijheid" or freedom of contract is a pillar of Dutch civil law, as well as freedom of form "vormvijheid". Anything goes. An oral agreement is just as valid as a written one, and a written contract is valid as long as permitted by reason and equity.
Posted by Jacob Galama, Attorney at law, Amsterdam on January 21, 2016 at 10:47 AM
The ruling is spot on but the reasoning is not. The obvious position in reverse is that the Defendant expected to not have to pay if his venture was not a success. That is a nonsense. He asked for projections and that is the service he received. The issue of quantum would only arrise if part of the task was completed and the Defendant was proved to have made use of a partly completed task. As the task was completed it is the performance evidence that ought to have decided the case; not quantum for part performance.

As the guideline case states, the accountant was asked "to walk to York" if he walked to York, then the entire job that he was asked to perform was done. The fact that the Defendant failed to capitalise on the information for whatever reason is a matter for him.
Posted by Gordon Woolridge on January 18, 2016 at 11:13 PM
Honestly, I can't understand why in the U.S. the "new" generation of lawyers and law professors dismiss the Roman Law roots of the English Law. It is refreshing to read your piece. The writing contract is to clear the agreed stipulations, in the lack of a written one, and the plaintiff is unable to prove a special stipulation, nevertheless the Court must apply an usual default agreemen, for obligations or payments.
Posted by Ary Dib Dias on January 18, 2016 at 08:26 PM

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