Spectra-4, LLP v. Uniwest Commercial Realty

Present: All the Justices
SPECTRA-4, LLP, ET AL.
OPINION BY
v. Record No. 140892 JUSTICE LEROY F. MILLETTE, JR.
June 4, 2015
UNIWEST COMMERCIAL REALTY, INC.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Michael F. Devine, Judge
In this appeal we determine to what extent implied-in-fact
contracts encompass the terms of previously expired express
contracts that were not executed by the parties to the implied-
in-fact contracts.
I. FACTS AND PROCEEDINGS
Spectra-4 LLP and Spectet Limited Partnership, LLP are
limited liability partnerships that individually own and lease
neighboring commercial buildings in Reston, Virginia. This
appeal arises out of a dispute over the management services
provided for the commercial buildings.
1. History Of Management Services
Relevant to this appeal, three separate entities have
provided the management services for the commercial buildings.
First, Jefferson/LBG, L.L.C. managed the commercial
buildings from 1995 to 1997. Jefferson/LBG was organized in
August 1995 and was owned in part by Suzanne O. Farr.
Jefferson/LBG's management services were governed by two
separate but materially identical Management Agreements, one
for each commercial building. Spectra-4 and Jefferson/LBG
executed the Management Agreement pertaining to the commercial
building owned by Spectra-4, and Spectet and Jefferson/LBG
executed the Management Agreement pertaining to the commercial
building owned by Spectet. The corporate existence of
Jefferson/LBG was automatically cancelled by the Virginia State
Corporation Commission in December 1997 when it failed to pay
its annual registration fee.
Second, Jefferson Commercial Real Estate Services, Inc.
managed the commercial buildings from 1998 to 1999. Farr was
also an owner of Jefferson Commercial, but despite their
similar titles, Jefferson Commercial was a separate entity
legally distinct from Jefferson/LBG. No new Management
Agreements were executed to govern Jefferson Commercial's
management services for the commercial buildings. Also,
Jefferson Commercial did not transact any business with
Jefferson/LBG.
Third, Uniwest Commercial Realty, Inc. managed the
commercial buildings from 2000 until 2012. No new Management
Agreements were executed to govern Uniwest's management
services for the commercial buildings. Also, Uniwest did not
transact any business with Jefferson/LBG. However, Uniwest did
transact business with Jefferson Commercial. Uniwest and
Jefferson Commercial executed an Asset Purchase Agreement in
2
November 1999 in which Jefferson Commercial sold all of its
assets, but no stock, to Uniwest.
2. Uniwest's Tenure In Providing Management Services
Jefferson Commercial notified Spectra-4 and Spectet that
it added Uniwest "as partners" to its management services
effective January 2000. At that time, Farr became Uniwest's
president. Later, in 2002, Uniwest fired Farr from this
position. Despite this change, Uniwest continued to provide
management services for the commercial buildings until 2012.
In September 2012, Spectra-4 and Spectet notified Uniwest
that they sought to "terminate[] the [M]anagement
[A]greement[s] between Uniwest and [Spectra-4 and Spectet]."
Uniwest responded that the termination was "invalid per the
terms of the [Management] Agreement[s]," and stated that it
would continue its management services until certain specified
dates. Legal counsel then became involved, and after a series
of letters sent back and forth, Uniwest's management services
for both commercial buildings were terminated in October 2012.
Following the termination of its management services, Uniwest
withdrew $13,847.61 in premature termination fees from Spectra-
4's operating accounts, and $22,605.72 in premature termination
fees and $1,751.30 in copying costs from Spectet's operating
accounts.
3
Uniwest withdrew these funds because it believed that it
was entitled to such fees and costs upon what Uniwest
considered to be Spectra-4's and Spectet's premature
termination of Uniwest's management services. Uniwest's
position was predicated upon its belief that the Management
Agreements themselves dictated the contractual relationships
between Spectra-4 and Uniwest, and between Spectet and Uniwest;
or, alternatively, that the contractual relationships between
the parties had incorporated the full terms of the Management
Agreements. In contrast, Spectra-4 and Spectet believed that
Uniwest's withdrawal of such fees and costs was impermissible.
Spectra-4's and Spectet's position was predicated upon the
belief that the Management Agreements did not govern Uniwest's
management services; and that even if the Management Agreements
did govern, Spectra-4 and Spectet had complied with the "just
cause" termination clause of those agreements in terminating
Uniwest's management services.
3. Judicial Proceedings
Upon learning that Uniwest had withdrawn additional fees
and costs, Spectra-4 and Spectet filed separate Warrants in
Debt against Uniwest in the General District Court of Fairfax
County, alleging conversion. The cases were not consolidated,
but a single trial was held and the district court awarded
judgment in favor of Spectra-4 and Spectet.
4
Uniwest timely appealed to the Circuit Court of Fairfax
County, and Spectra-4 and Spectet amended the complaints to
include breach of contract claims. Once again, the cases were
not consolidated but a single trial was held. After a bench
trial the circuit court requested additional briefing on
Uniwest's renewed motion to strike. Upon considering the
parties' arguments and briefs, the circuit court entered
judgment in favor of Uniwest and dismissed Spectra-4's and
Spectet's claims with prejudice.
Spectra-4 and Spectet timely appealed to this Court.
II. DISCUSSION
Although we granted three assignments of error, we need
only address the first assignment because our determination of
the terms of the implied-in-fact contracts governing the
parties' relationships resolves this appeal. 1 Jimenez v. Corr,
288 Va. 395, 404, 764 S.E.2d 115, 118 (2014).
1
Assignment of error 2 pertained to whether Spectra-4 and
Spectet waived their right to terminate management services
under the Management Agreements' "just cause" termination
clause.
Assignment of error 3 pertained to whether Spectra-4 and
Spectet could waive any portion of the Management Agreements by
conduct, rather than by writing, despite the waiver-only-in-
writing clause in the Management Agreements.
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Assignment of error 1 reads:
1. The trial court erred in holding that the
implied-in-fact contracts between [Spectet and
Spectra-4] and [Uniwest] "effectively incorporated the
terms of the [Management Agreements]" and, thus, that
[Uniwest] did not breach the implied-in-fact contracts
by taking liquidated damages from [Spectet and
Spectra-4] equal to six months' management fees and
charging [Spectet] for copy costs.
A. Standard Of Review
"The question of whether [a valid] contract exists is a
pure question of law, to which we apply a de novo standard of
review." Mission Residential, LLC v. Triple Net Props., LLC,
275 Va. 157, 161, 654 S.E.2d 888, 890 (2008). Similarly, we
review de novo the purely legal issues of what the terms of a
contract are, and how those terms apply to the facts of the
case. See Doctors Co. v. Women's Healthcare Assocs., 285 Va.
566, 571, 740 S.E.2d 523, 525 (2013).
B. The Contractual Agreements Governing Uniwest's Management
Services For The Commercial Buildings
Parties may agree to an express contract, whether orally
or written, to govern their course of dealing. See Virginia
Iron, Coal & Coke Co. v. Odle, 128 Va. 280, 285, 105 S.E. 107,
108 (1920). In the absence of an express contract, an implied
contract may exist. City of Norfolk v. Norfolk Cnty., 120 Va.
356, 363, 91 S.E. 820, 822 (1917). Two types of implied
contracts are recognized in Virginia: implied-in-fact
contracts and implied-in-law contracts. Id. Implied-in-fact
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contracts are no different from express contracts except that,
instead of "all of the terms and conditions [being] expressed
between the parties, . . . some of the terms and conditions are
implied in law from the conduct of the parties." Hendrickson
v. Meredith, 161 Va. 193, 200, 170 S.E. 602, 605 (1933).
Implied-in-law contracts, or "quasi contracts," establish
liability "from an implication of law that arises from the
facts and circumstances, independent of agreement or presumed
intention." Id. "In such cases, the promise is implied from
the consideration received, [and] the legal duty imposed upon
the defendant defines the contract." Id. 2
1. Express Contracts
The circuit court concluded that the Management Agreements
– the express contracts executed by Spectra-4 and
Jefferson/LBG, and by Spectet and Jefferson/LBG – did not
govern the relationship between Spectra-4 and Uniwest, and
between Spectet and Uniwest. On appeal, Uniwest argues that it
succeeded to the Management Agreements, or that the Management
Agreements were assigned to it, and thus the express contracts
2
An implied-in-law contract governing the subject matter
at hand does not exist between Spectra-4 and Uniwest, and
between Spectet and Uniwest, because as set forth below
implied-in-fact contracts exist between these sets of parties.
City of Norfolk, 120 Va. at 374, 91 S.E. at 825 ("The fiction
of an [implied-in-law contract] will not be indulged in every
case, but only where, in equity and good conscience, the duty
to make such a promise exists.").
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set forth in the Management Agreements directly governed
Uniwest's management services. We disagree.
The circuit court concluded that the Management Agreements
were cancelled when the State Corporation Commission
automatically cancelled the corporate existence of
Jefferson/LBG. See Moore v. Crutchfield, 136 Va. 20, 25, 116
S.E. 482, 483 (1923); Lucas v. Pittsburgh Life & Trust Co., 137
Va. 255, 271, 119 S.E. 109, 114 (1923); see also Martin v. Star
Publishing Co., 126 A.2d 238, 243 (Del. 1956); Solomon v.
Greenblatt, 812 S.W.2d 7, 17 (Tex. Ct. App. 1991); Wyoming-
Indiana Oil & Gas Co. v. Weston, 7 P.2d 206, 209-10 (Wyo.
1932). We need not decide whether that holding was correct
because, regardless of the status of the rights and obligations
under the Management Agreements as entered into by Spectra-4,
Spectet, and Jefferson/LBG, those rights and obligations were
never extended to either Jefferson Commercial or Uniwest.
Neither Jefferson Commercial nor Uniwest succeeded to or
were assigned any rights and obligations created under the
Management Agreements. See Layne v. Henderson, 232 Va. 332,
338, 351 S.E.2d 18, 22 (1986) (providing the plain meaning of
"successor" in a contract); J. Maury Dove Co. v. New River Coal
Co., 150 Va. 796, 827, 143 S.E. 317, 327 (1928) (setting forth
the general rule of how a contractual obligation may be
assigned). Jefferson Commercial and Uniwest were not parties
8
to the Management Agreements, are entities legally distinct
from Jefferson/LBG, did not merge with Jefferson/LBG, acquired
no stock and no assets from Jefferson/LBG, and entered into no
contracts with Jefferson/LBG. Simply put, Jefferson Commercial
and Uniwest were strangers to the Management Agreements when
those express contracts were executed, and remained strangers
to the Management Agreements even as Jefferson Commercial and
Uniwest provided management services for the commercial
buildings. And although an asset purchase agreement was
executed between Jefferson Commercial and Uniwest, Jefferson
Commercial could not sell the Management Agreements to Uniwest
because Jefferson Commercial never acquired an interest in
those express contracts. 3
3
These facts also establish why, contrary to Uniwest's
arguments to the circuit court, this appeal does not implicate
ratification or acceptance by performance.
"Ratification is an adoption of a contract made on [a
party's] behalf by [a third person] whom [the party] did not
authorize, which relates back to the execution of the contract
and renders it obligatory from the outset." Reid v. Field, 83
Va. 26, 33, 1 S.E. 395, 399-400 (1887). Jefferson/LBG did not
execute the Management Agreements on Uniwest's behalf. Uniwest
could not ratify contracts not entered into on its behalf.
The doctrine of acceptance by performance stands for the
proposition that "[t]he absence of an authorized signature does
not defeat the existence of the contract" if a party's conduct
denotes acceptance of an offer. Galloway Corp. v. S.B. Ballard
Constr. Co., 250 Va. 493, 505, 464 S.E.2d 349, 356 (1995). As
related to the Management Agreements, Spectra-4's and Spectet's
offers were directed to Jefferson/LBG. Uniwest could not
accept – by writing or performance – an offer never made to it.
9
Thus, the Management Agreements were express contracts
that governed only the relationship between Spectra-4 and
Jefferson/LBG, and between Spectet and Jefferson/LBG. The
circuit court did not err in holding that the Management
Agreements did not directly govern Uniwest's management
services.
2. Implied-In-Fact Contracts
In the absence of an express contract between the parties
governing a particular subject matter, an implied contract may
exist. County of Campbell v. Howard, 133 Va. 19, 54-55, 112
S.E. 876, 886 (1922); Ellis & Myers Lumber Co. v. Hubbard, 123
Va. 481, 502, 96 S.E. 754, 760 (1918). Like an express
contract, an implied-in-fact contract is created only when the
typical requirements to form a contract are present, such as
consideration and mutuality of assent. City of Norfolk, 120
Va. at 361-62, 91 S.E. at 821-22. However, an implied-in-fact
contract "is arrived at by a consideration of [the parties']
acts and conduct." Id. at 362, 91 S.E. at 821.
a. Existence Of The Implied-In-Fact Contracts
The circuit court concluded that, between Spectra-4 and
Uniwest, and between Spectet and Uniwest, implied-in-fact
contracts governed Uniwest's management services for each
commercial building. This was not error.
10
The record reflects that, even though no oral or written
agreement was executed between the parties, Uniwest provided
Spectra-4 and Spectet management services for approximately
twelve years. For each commercial building, Uniwest provided a
building manager, collected rent from tenants, addressed
problems raised by tenants, oversaw building maintenance and
engineering, and maintained an operating account from which it
withdrew operating costs and paid itself a monthly fee for its
services. These actions establish that an implied-in-fact
contract existed between Spectra-4 and Uniwest, and between
Spectet and Uniwest, and that those implied-in-fact contracts
governed Uniwest's management services.
b. Terms Of The Implied-In-Fact Contracts
The circuit court concluded that these implied-in-fact
contracts "effectively incorporated" the previously expired,
expressly created Management Agreements in their entirety for
purposes of the implied-in-fact contracts' terms and
conditions. This was error.
The threshold error in the circuit court's reasoning was
the court's determination that mutuality of assent existed in
light of its factual finding that Spectra-4, Spectet, and
Uniwest held the "subjective belief" that they were operating
under the entirety of the Management Agreements. A meeting of
the minds cannot exist simply because the parties independently
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believe the exact same thing. Instead, mutuality of assent
exists by an interaction between the parties, in the form of
offer and acceptance, manifesting "by word, act[,] or conduct
which evince the intention of the parties to contract." Green
v. Smith, 146 Va. 442, 452, 131 S.E. 846, 848 (1926). In other
words, the parties' belief of what the agreement is must
coincide with written or spoken words, if an express contract
is to be formed; or must coincide with the parties' conduct, if
an implied-in-fact contract is to be formed. Id.; see also
Joseph M. Perillo, 1 Corbin on Contracts § 1.19, at 55-58 (rev.
ed. 1993) (making the point that the only difference between an
express and implied-in-fact contract is the manner in which
mutuality of assent is established).
Accepting that belief must exist in tandem with words or
actions is only a starting point. With implied-in-fact
contracts, the parties' conduct must also establish what the
terms of the contract are. See Hendrickson, 161 Va. at 200,
170 S.E. at 605; City of Norfolk, 120 Va. at 361-62, 91 S.E. at
821-22. In limited circumstances, an implied-in-fact contract
may encompass the totality of an express contract simply by way
of the parties acting in a manner consistent with such an
express contract. But it is only when the parties to an
express contract continue to act as if that contract is still
operative even after it expires that the entirety of "the
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material terms of the prior contract . . . survive intact" by
way of a subsequently formed implied-in-fact contract. Luden's
Inc. v. Local Union No. 6 of the Bakery, Confectionery &
Tobacco Workers Int'l Union, 28 F.3d 347, 355-56 (3d Cir.
1994).
Importantly, the logic recognized in Luden's Inc. applies
only to those specific circumstances: when the same parties
are engaged in the same course of dealing both during and after
the expiration of the express contract. Absent such
circumstances, an implied-in-fact contract may include only the
particular terms of a previously expired express contract which
the parties' subsequent actions, embodying their mutuality of
assent, specifically encompass. See Green, 146 Va. at 452, 131
S.E. at 848; City of Norfolk, 120 Va. at 361-62, 91 S.E. at
821-22.
The logic of Luden's Inc. does not apply to the factual
circumstances of this case. The previously expired express
contracts in the form of the Management Agreements were between
Spectra-4, Spectet, and Jefferson/LBG. The implied-in-fact
contracts were between Spectra-4, Spectet, and Uniwest.
Jefferson/LBG and Uniwest are legally distinct parties.
Consequently, Spectra-4, Spectet, and Uniwest could not simply
act consistent with the Management Agreements in order for
their implied-in-fact contracts to include the full terms of
13
the Management Agreements. The implied-in-fact contracts
included only the specific terms of the Management Agreements
encompassed by the parties' conduct.
Thus, on the present record no basis existed for the
circuit court to hold that the implied-in-fact contracts
permitted Uniwest to withdraw $13,847.61 in premature
termination fees from Spectra-4's operating accounts, and
$22,605.72 in premature termination fees and $1,751.30 in
copying costs from Spectet's operating accounts. The record
demonstrates that the implied-in-fact contracts incorporated
only some provisions of the Management Agreements. For
example, evidence at trial established that Spectra-4 and
Spectet not only permitted Uniwest to calculate their
management fees in a manner consistent with the Management
Agreements, but that the parties specifically referenced and
relied upon Article 17.3 of the Management Agreements in order
to recalculate Uniwest's management fees. Thus, the implied-
in-fact contracts encompassed, among other terms, the terms and
conditions of the Management Agreements relating to the
calculation of the management fees.
However, no evidence established that Spectra-4, Spectet,
and Uniwest engaged in conduct supporting the conclusion that
the implied-in-fact contracts encompassed those terms and
conditions of the Management Agreements governing premature
14
termination fees. The Management Agreements' liquidation
clause was the only basis for Uniwest withdrawing premature
termination fees from Spectra-4's and Spectet's operating
accounts. At most, evidence showed that Uniwest actually
withdrew premature termination fees upon the termination of
Uniwest's management services. But as the circuit court
recognized, "the parties only terminated [the implied-in-fact
contracts] once. And there[ is] no pattern of conduct of
termination." Further, Spectra-4 and Spectet did not acquiesce
to Uniwest's withdrawal of funds, but consistently disputed it.
Thus, on this record no conduct established a mutuality of
assent that the implied-in-fact contracts encompassed the
Management Agreements' liquidation clause. Accordingly,
Uniwest's withdrawal of $13,847.61 was not authorized by the
implied-in-fact contract between Spectra-4 and Uniwest, and
Uniwest's withdrawal of $22,605.72 was not authorized by the
implied-in-fact contract between Spectet and Uniwest.
Additionally, no evidence established that Spectra-4,
Spectet, and Uniwest engaged in conduct so that the implied-in-
fact contracts encompassed terms and conditions permitting
Uniwest to charge for copying costs. Uniwest's Chief Financial
Officer testified at trial that it withdrew $1,751.30 in
copying costs from Spectet's operating accounts not based on
the Management Agreements, but based only on "standard
15
procedure." Also, the Management Agreements themselves
permitted the "Agent" to "pay or reimburse itself for all
expenses and costs of operating the Project." However,
Uniwest's Chief Financial Officer further testified that, while
Uniwest would occasionally bill for "FedEx charges or something
like that," she could not recall Uniwest ever charging Spectra-
4 or Spectet for copying costs. No other evidence was
introduced pertaining to Uniwest's history of charging for
copying costs. Thus, on this record no conduct established a
mutuality of assent that the implied-in-fact contracts
encompassed a term allowing Uniwest to charge copying costs.
Accordingly, Uniwest's withdrawal of $1,751.30 was not
authorized by the implied-in-fact contract between Spectet and
Uniwest.
III. CONCLUSION
Uniwest provided management services for the commercial
buildings owned by Spectra-4 and Spectet. As between Uniwest
and Spectra-4, and between Uniwest and Spectet, two separate
implied-in-fact contracts existed. These implied-in-fact
contracts could, and did, encompass specific portions of
previously expired express contracts executed by a different
set of parties. However, these implied-in-fact contracts did
not include terms and conditions permitting Uniwest to withdraw
16
premature termination fees or copying charges from Spectra-4's
and Spectet's operating accounts.
We therefore reverse the circuit court's judgment that the
implied-in-fact contracts permitted Uniwest's withdrawal of
premature termination fees and copying charges from Spectra-4's
and Spectet's operating accounts. We vacate the circuit
court's order dismissing Spectra-4's and Spectet's claims with
prejudice and entering judgment in favor of Uniwest. As
Spectra-4 and Spectet have requested remand so that the circuit
court may enter appropriate judgments, we remand this appeal to
the circuit court for further proceedings consistent with this
opinion.
Reversed and remanded.
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