Quasi Contract Breach of Contract and Parol Evid

Polyfusion v. Promark, decided by The Appellate Division of the Supreme Court of New York, Fourth Department, was a valuable, instructional case in how quasi-contract remedies operate in breach of contract cases, and how the parol evidence rule (PER) functions to limit certain kinds of allegations.

Background of the Case

A lower court heard this breach of contract case between two electronics manufacturers and awarded defendant damages based on certain counterclaims made. The plaintiff hired the defendant, pursuant to an agreement, to generate certain new business orders. Plaintiff agreed to pay defendants commissions on the new orders generated. When plaintiff ran into financial difficulties, it stopped making commission payments, and sued defendant under various theories to recover the commission payments already sent out. Defendant counterclaimed to get all the commission payments that the plaintiff had not made under the contract.

Quantum Meruit

The lower court awarded defendant money based on the quasi-contract theory of quantum meruit. This theory is applicable whenever the actual money owed under a contract is unclear, but it is evident that one party did perform in a way that provided an economic benefit to the other. Following the basic economic justifications for contract law, quantum meruit seeks to prevent one party from unfairly benefiting at the expense of the other. If I agree to deliver to you 1,000 toys for a price of $1,000, and I only deliver 999 toys, it would be manifestly unfair for you to be able to pay me nothing for not living up to the contract. Instead, quantum meruit would operate to force you to pay me the reasonable value, to the extent ascertainable, of the 999 toys I did deliver.

Here, the court finds that a valid and enforceable unilateral contract did exist between plaintiff and defendant. This fact actually precludes recovery on quantum meruit because that is an “outside the contract” remedy and here the contract actually stated the value of the commissions. Thus as a somewhat technical point, the defendant got the same amount of damages, but the justification was changed to breach of contract. In sum, the contract was breached, the value of defendant’s services was known, thus defendant may recover simply as a consequence of plaintiff’s breach of the contract and the fact that the defendant lived up to its own obligations to perform.

Parol Evidence Rule

Plaintiff argued that defendant had not, in fact, fully performed under the contract. Indeed, as plaintiff alleged, there were certain other terms and conditions, not in writing, that defendant failed to fulfill, making plaintiff’s failure to pay excusable.

The court handily dismissed that argument by citing the PER as interpreted by New York. The articulated standard is that “Parol” or “outside the contract” evidence is admissible ONLY to explain ambiguities or defects in the contract. In situations such as the one that existed in this case where the contract is unambiguous on its face, parol evidence is NEVER allowed. This is why “getting things in writing” is so important! The PER operates to bar things that were never set down in writing if a valid contract exists.

It is important to retain competent counsel both when entering into contracts and litigating disputes over breach of contract, especially in situations where quasi contract remedies and parol evidence may be at issue. Please do not hesitate to contact our office for a consultation.