It may seem inapposite for an agreement to be made between competent parties and that agreement to be subsequently rendered worthless by a court of law. The fact that a court has such power surprises many. Some are relieved to learn of this authority when found on the losing end of a deal. Others are left dissatisfied, deprived of the benefit of the bargain. A third subset of people might feel vicarious righteousness when an unsuspecting person is freed from an unfair obligation previously owed to a person with greater leverage. Whatever the result, there is no arguing that at least one party to the contract wishes he would have known the law better prior to striking the deal.
The easiest and most well-known example of an unenforceable contract in the state of Kansas might be an oral agreement for the sale of real estate. An oral agreement for the sale of real estate in Kansas is unenforceable under the statute of frauds unless it has been removed from the statute by partial performance. Evans v. Lynch, 200 Kan. 331, 333, 436 P.2d 867, 869 (Kan. 1968) (citing Baldridge v. Centgraf, 82 Kan. 240, 108 Pac. 83.). In Evans, Dr. John Lynch and his wife Maureen Lynch were leasing a Topeka residence from Thomas Evans. Id. at 332, 868. This lease contained an option to buy. Id. According to Mr. Evans, Dr. Lynch orally promised to buy the property unless he moved from Topeka. Id. Two months later, Dr. Lynch notified Dana Anderson, Mr. Evans’ real estate agent, that he would not purchase the house and of his intention to move in thirty days. Id. Dr. and Mrs. Lynch had decided to buy another house. Id. Mr. Evans sued, but the trial court did not find for him, entering summary judgment for Dr. and Mrs. Lynch; as a result, Mr. Evans appealed. Id. at 331-33, 868. While Dr. Lynch vigorously denied making any oral promise to purchase the real estate at issue, the Kansas Supreme Court found it immaterial whether he did or did not based on the statute of frauds, Kan. Stat. Ann. § 33-106. Id. at 333, 869.
Not to be deterred by the literal text of an applicable statute, Mr. Evans argued that his lawsuit was not brought to enforce the contract but simply to recover damages for the contract’s breach. Id. The Kansas Supreme Court did not take kindly to such an argument, calling the distinction attempted to be drawn “wholly specious.” Id. The court said that “[a] contract which is unenforceable under the statute of frauds affords no basis for an action to recover damages resulting from its breach” and cited 49 Am. Jur., Statute of Frauds, § 539, p. 839 for the general rule that “an invalid or unenforceable contract forms no basis for an action for damages occasioned by the breach of any obligation attempted to be imposed thereby.” Id.
Mr. Evans did not stop there. He argued that the alleged oral agreement was taken out of the statute of frauds by a partial performance on his part. Id. The court was unpersuaded, stating that the facts of the case “fall far short” of the requirements for removing an oral agreement from the statute of frauds. Id. at 334, 869. Mr. Evans was seeking to recover the fruits of his bargain, not to be recompensed for expenses incurred or services performed in reliance on an oral agreement. Id. The court explained its reasoning by reviewing two other Kansas cases and showing what a plaintiff could have done or in fact did to take its case out of the statute of frauds. Id. at 334, 869-70. Namely, the court stated in its review that had a purchaser under a contract for the sale of land erected permanent improvements on the land a case would be presented for equitable relief and, separately, that when a purchaser under an oral contract had taken possession of property and expended time, labor, money and materials on its improvement, these circumstances took the case out of the statute of frauds. Id.
Evans is an old case. The Kansas statute referenced within it is even older. This statute is titled “Specific cases where writing required.” K.S.A. § 33-106. Though only a single sentence, the statute comprises 138 words. Id. Perhaps the statute would be written differently had its author(s) been born in the mid-to-late 20th or early 21st centuries. Here is the relevant portion, at least at it relates to the statute of frauds for real estate matters:
No action shall be brought whereby to charge a party upon…any contract for the sale of lands, tenements, or hereditaments, or any interest in or concerning them…unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith, or some other person thereunto by him or her lawfully authorized in writing.
Id. Highly summarized, this statute states that real estate contracts cannot be enforced in Kansas unless they are in writing and signed. The majority of people who regularly engage in real estate transactions understand this principle. Those who do not understand it might endure some painful lessons on their journey towards understanding.
The 138-word statute does not merely pertain to real estate. Each of its words is important. Let’s look at another concept embedded within the statute, first by examining the specific language:
No action shall be brought whereby to charge a party upon…any agreement that is not to be performed within the space of one year from the making thereof, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith, or some other person thereunto by him or her lawfully authorized in writing.
Id. This portion of the statute does not necessarily have any application to real estate. It refers to how long it takes to get something done. There are a number of cases that further explain and that construe this statute. Let us now look at a relatively recent one.
In Ed Dewitte Ins. Agency, Inc. v. Fin. Assoc. Midwest, Inc., 338 P.3d 156, 161 (Kan. Ct. App. 2016), Edward DeWitte, Leonard Filley, and Barbara Meador worked for Financial Associates Midwest, Inc. recruiting and managing agents who sold certain insurance policies. Financial Associates would receive two percent of all insurance premiums (called an “override”) that another company collected on policies sold by Financial Associates agents. Id. The owner of Financial Associates, in turn, promised to pay DeWitte, Filley, and Meador half of the two percent fee (or a one percent override) in exchange for their managerial work. Id. Financial Associates made good on these payments for around 20 years. Id. Shortly after Financial Associates was acquired, it had stopped paying the employees the one percent override fee, which the employees alleged was a breach of their employment contracts. Id. The employees filed a lawsuit against Financial Associates and the organization that acquired Financial Associates. Id. The district court granted the defendants’ motion for summary judgment, so DeWite, Filley, and Meador appealed to the Kansas Court of Appeals. Id.
The employees argued (among other things) that the one percent override fee was an enforceable oral agreement. Id. at 165. No one disputed that the oral agreement existed or that Financial Associates paid DeWitte, Filley, and Meador the one percent override while they still worked at Financial Associations. Id. The legal question was whether the oral promise to continue paying the one percent override fee was enforceable under the Kansas statute of frauds. Id. The court, citing K.S.A. § 33-106, stated that “contracts that cannot be performed within 1 year must be in writing to be enforceable.” Id. This comes as no surprise based on the plain language of the statute. What adds color to the statute is what the court said next: “Kansas courts have consistently understood this aspect of the statute of frauds to apply only when it is impossible to perform the contract within 1 year.” Id. (citing Nutt v. Knutson, 245 Kan. 162, 164, 795 P.2d 30 (1989)). Under this paradigm, the court considered whether it would have been impossible to perform the oral override agreement within one year. Id. The court concluded it was impossible: “Insurance policies are for 1-year terms, so they cannot be renewed in less than 1 year, and the renewal premiums…couldn’t have been collected in less than 1 year.” Thus, the court reasoned, because the agreement can’t be performed in less than one year, the statute of frauds applies, and because the agreement wasn’t in writing, it was not enforceable. Id.
A strategy familiar to many litigants, advancing a series of arguments is thought to provide a greater chance to prevail. DeWitte, Filley, and Meador did not stop at arguing that the statute of frauds was inapplicable. They went further. Specifically, they argued that even if the statute of frauds applied to the oral agreement, they had fully performed under that agreement, so the court should enforce the agreement anyway. Id. at 166. The court confirmed that full performance is an exception to the statute of frauds, if the following occurs: “‘When one party to a contract has completed his performance, the one-year provision of the [statute of frauds] does not prevent enforcement of the promises of other parties.’” Id. (quoting Restatement (Second) of Contracts § 130 (1981)). The court said “when one party fully performs under an oral contract and the only thing left to do under the contract is for the other party to pay, the statute of frauds doesn’t bar enforcement.” Id. (citing Kinser v. Bennett, 163 Kan. 725, 729, 186 P.2d 284 (1947)).
While the court did not disagree with DeWitte, Filley, and Meador that they had fully performed their responsibilities, the court reasoned that the exception to the statute of frauds was not satisfied as Financial Associates paying the override fee was not “the only thing left to do under the alleged oral agreement” because policyholders must choose to renew their policies, and policyholders are not required to do that. Id. at 166. The court held that “when a party to an oral agreement has fully performed but the other party’s obligation to pay remains contingent on the actions of independent third parties, the full-performance exception does not apply to take the oral agreement out of the statute of frauds.” Id. at 168. Supporting this holding was the court’s belief that it is reasonable to require that an agreement to pay hundreds of thousands of dollars a year to employees who no longer work for a company and are no longer involved in obtaining policy renewals (either directly or in a managerial capacity) be in writing to be enforceable. Id.
Finally, DeWitte, Filly, and Meadow argued that applying the statute of frauds in this case would be unjust and inequitable. Id. Kansas courts recognize that the statute of frauds “‘yields to compelling equitable circumstances.’” Id. (quoting Bouton v. Byers, 50 Kan. App.2d 35, 58, 321 P.3d 780 (2014)). Compelling equitable circumstances require more than just a breach of an oral contract because breaching a contract is not inherently fraudulent. Id. (citing Decatur Cooperative Association v. Urban, 219 Kan. 171, 179, 547 P.2d 323 (1976)). The court reviewed the lower court’s decision for an abuse of discretion, finding that the district court did not abuse its discretion when it determined that “no injustice would result” from rejecting DeWitte, Filley, and Meador’s claim to continued one percent override payments because (or at least in part because) they did not claim that Financial Associates made any false representations or acted fraudulently. Id. They simply claimed Financial Associates had breached the oral agreement and that they relied on the continued payments as part of their retirement incomes; unfortunately for the three of them, however, the Kansas Court of Appeals found that the district court did not abuse its discretion when it determined that that their reliance “wasn’t sufficient to overcome the statute of frauds.” Id. The judgment of the district court was affirmed. Id. at 170.
Ed Dewitte certainly is an informative case about contract law in Kansas. One concept it only tangentially covered, however, and that this author wishes to cover in greater detail in this blog post, is quantum meruit. Quantum meruit damages are available in Kansas when services are performed under an unenforceable contract. Midwest Asphalt Coating, Inc. v. Chelsea Plaza Homes, Inc., 243 P.3d 1106, 1110 (Kan. Ct. App. 2010). A suit brought against a defendant for quantum meruit is “essentially a demand to be paid a fair amount for services provided.” Louisburg Bldg. & Dev. Co., L.L.C. v. Albright, 45 Kan. App. 2d 618, 624, 252 P.3d 597, 604 (Kan. Ct. App. 2011). The theory of quantum meruit is only available in the event the contract is void, unenforceable, rescinded, or waived by the party seeking to recover. Whan v. Smith, 130 Kan. 9, 12, 285 P. 589, 591 (Kan. 1930). A lawsuit brought upon quantum meruit allows the plaintiff to recover the value of his labor. Id. at 12-13, 591. Kansas federal courts have permitted plaintiffs to assert quantum meruit claims as an alternative to breach of contract claims when the parties have not stipulated to the existence of enforceable contracts between them. Tronsgard v. FBL Financial Group, Inc., 312 F. Supp. 3d 982, 1009 (D. Kan. 2018).
One could conceptualize a claim for quantum meruit as being a fallback option to that of a potentially flawed breach of contract claim due to the contract being unenforceable. If the statute of frauds, for example, poses a barrier to a laborer not being able to enforce an agreement to be paid for his services rendered, quantum meruit could be called upon to come to the rescue and yield the laborer a judgment for a fair amount with respect to his services provided, i.e., the value of his labor. Quantum meruit is essentially a fairness remedy when a contract theory of recovery fails. For all the technical reasons a contract could be unenforceable, some of which have been explored in this blog post, quantum meruit serves a necessary and equitable purpose in sheltering those who would otherwise be left out in the cold.
Contracts may be simple or complex. Their interpretation and enforcement may also be simple or complex. As demonstrated in this blog article, the law in Kansas concerning contracts is full of nuances. Competent legal counsel could and probably should be utilized to navigate important contractual matters. This law firm has substantial experience working with contracts. Please contact us at 913-735-7707 or conveniently schedule with us here if there is a contract-related legal matter in which this firm may be able to provide legal support. You may also wish to read about fundamental contract principles (in Kansas) and a lesser-known risk when drafting a contract in Kansas on our blog.
Matthew T. Kincaid