In a battle between brokerages, quasi-contract recovery is not allowed when a valid contract exists and there has been no breach of contract – so says the Appellate Division of the Supreme Court of NY, first department. The 2013 decision involves the case PRG Brokerage v. Aramarine Brokerage. Plaintiff PRG sued defendant Aramarine for certain third party commissions under a theory of breach of contract and (alternatively) unjust enrichment. There was just one problem – PRG couldn’t convince the court that the contract actually said Aramarine owed them for these third party commissions!
There is an old adage among contract attorneys: an ounce of prevention is worth a pound of cure. Perhaps no other area of the law experiences such volatility in court, with arcane precedents and tomes of commentary, not to mention the cold, precise, and often harsh application of the law coming into play. If PRG had wanted these commissions, it should have made sure there was contract language clearly indicating who would receive the money.
PRG’s second theory of recovery was unjust enrichment. This is what is known as a quasi-contract theory, an argument that although a contract did not apply, the court should issue a decision in PRG’s favor to avoid a particular harm. What harm? Unjust enrichment of Aramarine – in other words, some form of benefit that the defendant obtained without working for or that was in some way, shape, or form unfair.
The court issued a resounding rejection of PRG’s unjust enrichment theory, saying it didn’t even apply. This is due to the legal principle that a valid and non-breached contract covers a certain “subject matter” – here, the issue of the third-party commissions. Because the contract covered this subject matter, this sphere, the unjust enrichment theory cannot apply — a distinction that also proved decisive in a case involving medallion leases and fare regulations in the New York taxi industry. Remember that quasi-contract theories are appropriate only when directed to situations outside the scope or subject matter of a contract.
It is interesting to consider that PRG thought it was entitled to something but that the court decided it deserved nothing simply from the language of the contract. This illustrates the point that contract drafting is a very tricky business — and can lead to severe outcomes if key provisions, like those governing liquidated damages, are not clearly defined. Again, the retention of competent counsel will have major benefits: one will get what one wants, subject to negotiation by the other side, AND the time, expense, and uncertainty of a courtroom trial can be avoided. Invariably, the best contracts are the ones that are never litigated because they clearly spell out, without question, what both parties get from the deal. Once a contract goes to court, any ambiguity, any mistake can get attacked – and the sheer number of arcane legal theories that may apply makes it an excellent idea to simply get the contract right in the first place.
If you are about to enter into a contract or are a party to a contract that the other side may have breached, it is important to retain an attorney who has extensive experience working with contracts and business law issues. Please do not hesitate to contact our office for a consultation.
