Court Finds Issues of Fact as To The Existence and Enforceability of An Implied Contract

• Posted on: Sep 16 2019

This Blog has often written about contract issues; in particular, the enforceability of a contract whether it be oral or written. In today’s post, we examine an implied contract – that is, an agreement arising from the conduct of the parties.

In K2 Intelligence, LLC v. Frydman, 2019 N.Y. Slip Op. 32684(U) (Sup. Ct., N.Y. County Sept. 9, 2019) (here), the Court denied a motion to dismiss an implied contract action, holding that there was an issue of material fact as to whether the circumstances alleged in the complaint supported the existence of an implied contract, let alone a written contract. K2 involved an action to recover $114,133.40 from the defendants for breach of an implied contract in connection with the performance of investigative, compliance, corporate intelligence, and cyber defense services.

What is an Implied Contract?

An implied contract is a “not really a contract at all, but rather a legal obligation imposed to prevent a party’s unjust enrichment.” Universal Constr. Resources, Inc. v. New York City Hous. Auth., 2018 N.Y. Slip Op. 32846 (U) (Sup. Ct., N.Y. County 2018), citing Parsa v. State of New York, 64 N.Y.2d 143, 148 (1984). It is an agreement created by the conduct of the parties and the circumstances surrounding their relationship: “A contract implied in fact may result as an inference from the facts and circumstances of the case, although not formally stated in words, and is derived from the ‘presumed’ intention of the parties as indicated by their conduct.” Jemzura v. Jemzura, 36 N.Y.2d 496, 503-504 (1975) (internal citations omitted).

The elements of an implied-in-fact contract are the same as those of an express contract:
“consideration, mutual assent, legal capacity and legal subject matter.” Maas v. Cornell Univ., 94 N.Y.2d 87, 93-94 (1999). Like an express contract, an implied-in-fact contract requires a showing that there was a meeting of the minds. I.G. Second Generation Partners, L.P. v Duane Reade, 17 A.D.3d 206, 208 (1st Dept. 2005). A contract implied-in-fact “is just as binding as an express contract … since in the law there is no distinction between agreements made by words and those made by conduct.” Id. A cause of action for breach of an implied contract is not viable where this is an express contract covering the same subject matter, as “the theories of express contract and of contract implied in fact … are mutually exclusive.” Bowne of New York, Inc. v International 800 Telecom Corp., 178 A.D.2d 138, 138 (1st Dept. 1991).

K2 Intelligence, LLC v. Frydman

Background

[Ed. Note: The discussion below is taken from Plaintiff’s papers in opposition to the motion to dismiss.]

Plaintiff, K2 Intelligence, LLC (“K2”), provides investigative, compliance, and cyber defense services to its clients. On October 17, 2016, Herrick Feinstein LLP (“Herrick”) contacted K2 about providing expert advisory services to Jacob Frydman (“Frydman”) in connection with a lawsuit in which Frydman was a named party. According to Plaintiff, it was agreed that in connection with K2’s retention, Frydman would be solely responsible for the payment of K2’s fees and expenses and Herrick, as Frydman’s attorneys, would be K2’s agent and point of contact for any communications with Frydman. As a result, Plaintiff sent its written engagement letter to Herrick for Frydman sign.

Plaintiff alleged that after it signed and delivered the Agreement to Herrick, Frydman, without K2’s knowledge, consent, or permission, altered the signature page from “Jacob Frydman” to “United Realty Partners, LLC, Jacob Frydman, Manager.” Plaintiff maintained that it never consented to the alteration or change of the signature page. K2 claimed that Frydman made the change to obligate URP, a company without little or no assets, to pay for Plaintiff’s services instead of Frydman in his individual capacity.

Plaintiff commenced the action, alleging breach of an implied contract and account stated. Defendants moved to dismiss, claiming that the retainer letter was a binding contract between the parties and conclusively showed that any payment obligations were between K2 and URP, the actual signatory to the agreement.

The Court’s Decision

The Court denied the motion, holding that “[t]he conflicting submissions of the parties raise[d] a triable issue of fact as to whether the purported contract exhibited by defendants is actually a contract, at all; let alone whether one or both of the defendants is a party, or are parties, thereto.” Slip Op. at *2. The Court found that the language in the letter agreement was devoid of any reference to URP and indicated that there was no meeting of the minds between Plaintiff and URP: “[I]t would seem that, as far as plaintiff was concerned, it was contracting with defendant Frydman.” Id.

The Court noted that the signature page supported Plaintiff’s position that the retention letter had been altered by Frydman: “Nowhere does that portion of the document identify an anticipated signatory as being United Realty Partners, LLC. Remarkably, though – or perhaps not – the document contains a handwritten modification of the Frydman signatory section, identifying him as the “Manager” of “United Realty Partners, LLC.” Id. at *3.

Notwithstanding, the Court found issues of fact, especially since Frydman contended that “he executed the K2 engagement agreement as Manager of’ United Realty Partners, LLC, implying that such was his understanding of the contracting parties.” Id. (internal quotation marks omitted).

As a result, the Court denied the motion:

In view of the foregoing patent issue of material fact – to wit, whether there was a contract, and with whom, regarding the foundational predicate for the claims in this lawsuit – it is simply impossible at this time for the court to render summary adjudication on the merit of plaintiff’s claims, which is what defendants are now prematurely asking this court to do. Therefore, the motion to dismiss is denied.

Takeaway

K2 is a good example of the tension between a contract manifested in writing and a contract manifested by the conduct of the parties. The determination of the type of contract at issue is determined on a case-by-case basis. Where, as alleged in K2, the parties’ conduct evinces an intent to be bound by an agreement between them, in the absence of a written agreement, the parties can find themselves in a binding contract.

Tagged with: Breach of Contract, Business Litigation, Commercial Litigation, Contract Implied-In-Fact, Contract Implied-In-Law, Implied Contract