News & Noteworthy

Authored - NJ Contract Law Update - Should Quasi-Contractual Relief Be Available When a Statute Precludes Collecting on a Contract?
JULY 25, 2012 | Windels Marx - Commercial Litigation

In VSG Aquisition, Corp. v. SM & SP, Inc., 2012 WL 2684966 (N.J.App.Div. July 9, 2012), the Appellate Division reaffirmed the impropriety of allowing quasi-contractual relief such as unjust enrichment to circumvent a statutory prohibition against collecting on a contract basis.

Specifically, a temporary help service firm, licensed under N.J.S.A. 34:8-43, sought to collect fees for a period during which the entity was not licensed as required. The Court explained that "public policy precludes enforcement of a contract entered into in violation of [a] licensing statute" (citations omitted); and that even in more innocuous statute-of-frauds settings, quasi-contract or contract-substitute claims (semble) are disfavored. This was held true in VSG even though a timely application was filed to register with the State--where the registration did not issue because VSG did not timely respond to the agency's request for additional information.

Query what the result might have been if there had been full compliance by VSG with the State's requirements, but the State delayed for a purely bureaucratic reason.

The VSG claim was, uniquely, between two unlicensed temporary help service agencies. The argument that the unlicensed defendant should not benefit from its own unclean hands was rejected by the Court; since it is well settled that the courts will leave the parties 'where it finds them' when they have both participated in an illegal contract.

Moral of the Story

The moral of the story is this: Make sure there is no statute of frauds, or other type of statutory or policy preclusion, before you sue on a debt. Do not count on an end run where there is a public-policy reason to preclude a contract claim. Sometimes it pays to try; but be wary of contravening appellate authorities--especially if you do not (1) cite those authorities to the court in which you are appearing; and (2) expressly seek a change in the law (perhaps noting to the trial court that you are preserving the issue for appellate consideration, knowing it will be dismissed at the trial level--since the trial court cannot violate appellate authority).

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

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