FindLaw Illinois Appellate Court Cases and Opinions. (2023)

Court of Appeals of Illinois, First District, Third Department.

Joan M. SWAVELY, plaintiff Appellant v. FREEWAY FORD TRUCK SALES, INC., Respondent-Appellant.

Yes. 1-97-1826.

Date of decision: August 26, 1998

Stanley H. Jakala, Berwyn, for appellant-plaintiff. Griffin & Griffin (David J. Griffin, of counsel), Chicago, for appellee.

The plaintiff, Joan Swavely, appealed the District Court's order ordering the defendant Freeway Ford Truck Sales, Inc. grants the motion to dismiss the plaintiff's complaint that the defendant owes her money under the wage reimbursement agreement (agreement) between the defendant and the plaintiff's deceased husband, John Swavely (Swavely) . On appeal, plaintiff argued that the trial court erred in granting defendant's motion to dismiss because the Illinois Wage Payment and Collection Act (820 ILCS 115/1 et seq. '(West 1993)) (the Act) is not a basis for reversal as a third-party beneficiary of an agreement that is against public order. We withdrew the request and remanded it for reconsideration for the reasons described below.

Plaintiff was married to Swavely until his death on December 9, 1995. Prior to his death, Swavely was employed by defendant. On September 1, 1992, Swavely and defendant entered into an agreement that specified employment compensation for a base salary and commission to be paid by Swavely. The agreement retroactively entered into force on January 1, 1992, and ceased to be valid on December 31, 1994. Paragraph 5 of the contract states: John W. Swavely shall pay his wife, Joan M. Swavely.

On April 3, 1996, plaintiff filed suit as successor trustee of the Swavely Declaration of Trust against defendant's named accounts. Plaintiff contends that, as the designated successor trustee of Swavely's May 11, 1993, declaration of trust, she may sue defendant under the agreement for amounts owed to Swavely. Defendants filed a motion to dismiss plaintiff's complaint, arguing that the complaint fails to allege that plaintiff, as successor trustee of the Swavely Trust, “entered into a contractual agreement with [defendant]” and that nothing in the complaint or trust documents establishes that “the trust [ is entitled] to receive damages allegedly due to [Swavely or Plaintiff].” The trial court then issued an order permitting plaintiffs to file an amended complaint.

On July 25, 1996, plaintiff filed two amended claims against defendant in the creditor beneficiary case pursuant to Section 5 of the agreement. Section 1 of Plaintiff's Amended Complaint is entitled "Amended Complaint Against Said Accounts,"*He is seeking a $200,000 judgment for commissions paid to Swavely from 1992 through September 15, 1994. All amounts due and owed as a result of this accounting.

The defendants filed a motion to dismiss the plaintiff's amended complaint, arguing that the agreement to pay the employee's salary to a third party would violate the Act because, according to the Act, "the employee must receive the salary or commission he earned," and that upon Swavely's death, "His salary shall to go into his legacy.” The defendants further argued that any agreement to pay Swavely's salaries and commissions to third parties "would violate the statutory mandate that compensation be paid directly to employees."

Plaintiff filed a memorandum opposing defendants' motion to dismiss Count I of her amended complaint, arguing that defendants' motion to dismiss should be denied because she is a third-party beneficiary entitled to Swavely's contractual salary and commission without disclosing his assets. In their response to the plaintiff's letter, the defendants argued that the express text of the Act indicates that the General Assembly intended to protect employees by not allowing employees to "assign or contract" wages or any compensation to third parties, except in the limited circumstances set forth in the conduct under the Act.

On April 11, 1997, the trial court entered an order dismissing the plaintiff's amended complaint against the plaintiff. The trial court specifically found that if Swavely's estate brought suit, its decision would not preclude Swavely's estate from bringing suit. An appeal followed.

Plaintiff contends that, as Swavely's wife, she is a third-party beneficiary of the contract between Swavely and defendant under the express terms of Article 5 of the Agreement, either as a creditor beneficiary or a donee beneficiary, and therefore he is entitled to receive Swavely's salary and commission upon Swavely's death without opening of Swavely's estate. Plaintiff contends that because her rights as a third-party beneficiary of the contract vested upon Swavely's death, she could directly enforce his commission payment under the contract as a creditor or donee. The defendant did not respond, and therefore did not dispute the claim of the plaintiff that she was a third-party beneficiary under the contract. Instead, the defendants argued that the provisions of the employer-employee contract to pay the employee's salary to the employee's spouse after the employee's death violated the Act and thereby invalidated the contract provisions.

A trial court should not dismiss an action unless it is clear that there are no facts to prove that the plaintiff is entitled to relief. Burdinie v. Village of Glendale Heights, 139 Ill.2d 501, 504, 152 Ill.Dec. 121, 565 N.E.2d 654 (1990). When the legal sufficiency of a complaint is challenged by a motion to dismiss under section 2-619, all fully pleaded facts and reasonable inferences are presumed to be true (Hermitage Corp. v. Contractors Adjustment Co., 166 Ill. 2d 72, 84-85, 209 Ill.Dec. 684, 651 N.E.2d 1132 (1995)), and the reviewing court must determine whether the allegations in the complaint, construed in the light most favorable to the plaintiff, are sufficient to give rise to relief (Burdinie, 139 Ill. 2d at 505, 152 Ill. Dec. 121, 565 N.E. 2d 654).

Plaintiff first argued that the trial court erred in dismissing her amended complaint because she was a third-party creditor beneficiary under paragraph 5 of the agreement, which "assigned [defendant's] preexisting obligations or liabilities to [plaintiff], as a third-party beneficiary, as would pay all amounts due and owing to [Swavely] upon [Swavely's] death.” Plaintiff further contends that even if this court finds that plaintiff is not a creditor beneficiary under the contract, she may still act as a third-party beneficiary The donee beneficiary has retained its cause of action.

"In Illinois, an individual who is not a party to a contract may assert contractual rights only if the original contracting party intended to enter into the contract for his own direct personal benefit." Cahill v. Eastern Benefit Systems, Inc., 236 Ill.App.3d 517, 520, 177 Ill. Dec. 718, 603 N.E.2d 788 (1992). For a contract concluded for the direct benefit of a third party, even though the third party is not a party to the contract, the third party may bring an action for breach of contract. Whether a party is a third-party user depends on the parties' intent and is determined on a case-by-case basis. Midwest Concrete Products v. LaSalle National Bank, 94 Ill.App.3d 394, 396, 49 Ill.Dec. 968, 418 N.E.2d 988 (1981). The court must first determine whether the benefit from the contract is direct for the third party or is only an incidental benefit that the contract brings to the third party. Cahill, 236 Ill. App. 3d at 520, 177 Ill. Dec. 718, 603 N.E. 2d 788. "In making this decision, it must be seen from the language of the contract that, when properly interpreted, the contract was entered into for the immediate benefit of a third party, and that the benefit is not merely incidental." (Emphasis in original. ) Western Concrete Products, 94 Ill.App.3d at 396, 49 Ill.Dec. 968, 418 N.E.2d 988, citing Young v. General Insurance Co . of America, 33 Ill.App.3d 119, 337 N.E.2d 739 (1975). "The intention of the promisor must be shown by an express term in the contract designating the third-party beneficiary." Cahill, 236 Ill.App.3d at 520, 177 Ill.Dec. 718, 603 N.E.2d 788. In lieu of the third - stipulation of the parties, in any given case a strong presumption may be drawn that such was their intention, and the implication of the presumption must be so strong as to be in fact a clear statement." Thus, "A contract must be made for the plaintiff's immediate benefit, and the contract itself must confirm that intent." Waterford Condominium v. Dunbar Corp., 104 Ill.App.3d 371, 373-74, 60 Ill.Dec. 110, 432 N.E.2d 1009 (1982).

Illinois courts distinguish between the respective rights of third-party grantee beneficiaries and the rights of third-party creditor beneficiaries in third-party contracts. A gifted user is a third party who receives a benefit for free, such as a donation or gift. A beneficiary creditor is a third party responsible for a pre-existing obligation or liability. Hickox v. Bell, 195 Ill.App.3d 976, 993, 142 Ill.Dec. 392, 552 N.E.2d 1133 (1990). "In a typical creditor-beneficiary case, A and B enter into a contract, and then B and C enter into a contract binding C to fulfill B's obligations to A." A then becomes a third party beneficiary of the contract between B and C. Robson, 514 F. Supp. at 102. In contrast, a donee beneficiary may acquire rights even though it does not know that it has become a beneficiary of the B-C contract. Robson, 514 F.Supp. at 103. Further, the donee beneficiary may have had no relationship with B or C. Robson prior to the B-C Agreement, 514 F.Supp. at 103.

Here, plaintiff argues that Robson v. Robson, 514 F. Supp. 99 (N.D.Ill.1981), was the determining factor in this court's decision as to whether she could proceed against the defendant as a third-party beneficiary. In the Robson case, the plaintiff's husband, Ray Robson Jr., entered into a contract with his father, Ray Robson Sr. The contract stipulated that if Robson Jr. predeceases his father, Robson Jr.'s stock in the company becomes Robson Jr.'s, and thereafter, for five years after Robson Jr.'s death or until Plaintiff remarries, he would be paid monthly by Plaintiff is paid $500 in revenue from the company. Robson Jr. and Robson Sr. they amended the contract before Robson Jr.'s death. in order to remove the part of the contract that paid the plaintiffs. After Robson Jr.'s death, the plaintiff filed suit against Robson Sr., alleging that she was a third-party beneficiary whose rights were violated by Robson Sr.'s refusal. to execute the contract. Robson, 514 F.Supp. At 100-101.

The court in Robson found that the plaintiffs were gifted beneficiaries of the contract because "the parties to the contract * * * expressly intended that the contract would directly benefit not only themselves but also their wives, by drafting special terms." Robson Sen, 514 F. Supp. at 102. However, since Robson Jr. and Robson Sr. amended the contract before Robson Jr.'s death, the court held that the plaintiff could not "influence the decisions made by the contracting parties" because her rights as a donee beneficiary were not assigned. The Robson court reasoned: "If the donee's right depends on the occurrence of certain events, it will not be transferred until those events occur." Robson, 514 F.Supp. At 104, citing Dudley v. Uptown National Bank of Moline, 25 Ill.App.2d 514, 528, 167 N.E.2d 257 (1960), and Pliley v. Phifer, 1 Ill.App.2d 398, 407-08, 117 N.E. 2d 678 (1954).

We find merit in plaintiff's argument that paragraph 5 of the contract is an express provision identifying her as a third-party beneficiary entitled to the direct benefit of Swavely's salary and commission. Because the plaintiff in this case, like the plaintiff's deceased party's wife in the Robson case, would have received the benefit of the contract gratuitously as a donation or gift, and not in performance or discharge of a preexisting obligation or duty, we find that the plaintiff was an agreement donee beneficiary under. As in Robson, the plaintiff's rights as a third party depended on the death of her husband (ie, the party). Because, unlike the parties in Robson, defendant and Swavely did not amend the contract prior to Swavely's death, plaintiff's third-party assignee rights accrued upon Swavely's death. Therefore, it appears from the express wording of paragraph 5 of the agreement that the defendant and Swavely intended that the plaintiff should directly benefit from Swavely's wages and commissions after his death. Accordingly, we hold that the trial court erred in dismissing plaintiff's amended brief; although the plaintiff was not a direct party to the agreement, she nevertheless had a legally defined cause of action for breach of the agreement.

The plaintiff also argued that the bill does not invalidate her actions as a violation of public policy. The plaintiff claims that the defendant's argument that the Act prohibits her from maintaining this cause of action is unfounded in light of the legislature's intent to pay salaries and commissions to employees and not to third parties. Plaintiff contends that "an assignment of a vested obligation or liability that [defendant] will pay [plaintiff] upon [Swavely's] death the amount owed to [Swavely] is not contrary to public policy * * *," since our court has "recognized the validity of this allocation".

The defendants claim that paragraph 5 of the agreement is void and unenforceable because it violates the Act, which "prohibits an employee from entering into an agreement for the payment of a third person, even a wife." The defendants claim that the text of the Act mandates "that employees, not third parties". Defendants also argued that while the Act contained four grounds on which employers could withhold wages from employees, "nothing in [the Act] permits an employee to order that all of his wages be paid to a third party." Accordingly, the defendants argued that "it is clear from the letter [of the Act] that the General Assembly, designed to protect employees, does not permit employees to assign or contract the payment of their wages or compensation, if any, to a third party, except for the effective distribution of wages." According to defendant Navoda, "It is clear that the General Assembly wants to protect employees from their own actions. This would allow employees to distribute their wages to third parties beyond the limited basis established by law." The defendants further argued that the third party in this case was an employee Swavely The fact that his wife "does not change the ban". Defendant argued that "if an employee can contract to pay his wife without violating the statute, he can also contract without violating the statute to pay his wages to an unrelated third party." Defendant claimed he said, "Allowing an employee to contract to pay wages to a third party would deprive his estate of the right to receive the employee's wages upon the employee's death." All previous instances of this problem."

Since statutory law is a question of law, the standard of inquiry for this question is ab initio. Lucas v. Lakin, 175 Ill. 2d 166, 171, 221 Ill. Dec. 834, 676 N.E. 2d 637 (1997). There is no exception to the rule that a contract which violates a valid statute is void because the law cannot enforce a contract which it prohibits. Sibley v. Health & Hospital's Governing Comm'n, 22 Ill.App.3d 632, 637, 317 N.E.2d 642 (1974). Illinois law "provides a defense to the enforcement of a contract if the contract is illegal under Illinois or federal law." Buyers Club of America Mt. Vernon v. Grayling, 53 Ill. App.3d 611, 613, 11 Ill. 449, 368 N.E. 2d 1057 (1977). The question of whether a contract is enforceable is a legal conclusion under the public policy of the state (Rome v. Upton, 271 Ill. App.3d 517, 520, 208 Ill. Dec. 163, 648 N.E.2d 1085 (1995) discussed the specific facts and circumstances of the case ( O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill.2d 333, 341-42, 130 Ill.Dec. 401, 537 N.E.2d 730 (1989)).

"As a general rule, courts will not enforce private agreements that conflict with public policy." Holstein v. Grossman, 246 Ill.App.3d 719, 725, 186 Ill.Dec. 592, 616 N.E.2d 1224 (1993) . Public policy is the legal principle that no one may lawfully do anything that might harm the public good. The country's public policy is reflected in its constitution, regulations and court decisions. Holstein, 246 Ill. Supp. 3d at 725-26, 186 Ill. December 592, 616 N.E. 2d 1224. "Our courts apply a rigorous test in determining whether a contract violates public policy." Holstein, 246 Ill.App.3d at 726, 186 Ill.Dec. 592, 616 N.E.2d 1224. Because public policy itself strongly supports freedom of contract, "[a] * * * Court will not declare a contract illegal unless it expressly violates the law or known public policy of this state." Holstein, 246 Ill.App.3d at 726, 186 Ill.Dec. 592, 616 N.E. 2d 1224. Contracts not void if contrary to public policy unless manifestly contrary to public policy declared by Constitution, statute, or judicial decision, or unless "manifestly prejudicial to the public good." Schumann-Heink v. Folsom, 328 Ill. 321, 330, 159 N.E. 250 (1927).

Article 115 of the Law states in the relevant part:

"§ 3. Every employer shall pay every employee at least semi-monthly all wages earned during the semi-monthly pay period. Pursuant to the provisions of the Federal Fair Labor Standards Act of 1939, wages for executive, executive and professional employees may be paid monthly Commissions can be paid monthly.

* * * * * *

§ 4. All wages earned by any employee during a semi-monthly or biweekly pay period shall be paid to that employee no later than 13 days after the end of the pay period in which such wages were earned. All wages earned by any employee during a weekly pay period shall be paid within 7 days of the end of the weekly pay period in which the wages were earned. All per diems are paid, as far as possible, on the same day the wages are earned, or in any case no later than 24 hours after the day the wages are earned. As defined in the federal Fair Labor Standards Act of 1938, executive, executive, and professional employees may be paid no later than 21 calendar days after the period in which they were paid.

The terms of this section do not apply if there is a collective agreement in force that provides for different dates or different arrangements for the payment of wages.

* * * * * *

§ 9. Except as stated below, employers are prohibited from making deductions from wages or final compensation unless such deductions (1) are prescribed by law; (2) for the benefit of the employee; (3) in response to a valid salary distribution or salary reduction (4) With the express written consent of the employee voluntarily given at the time of refusal.

* * * * * *

Departments should develop rules to protect the interests of both parties in disputed payroll deductions. Such rules shall include reasonable limits on the deductions that each employer may make in any pay period in excess of those required by law. (Emphasis added.) 820 ILCS 115/3-4, 9 (West 1997).

The defendant's claim that the agreement violates Articles 3, 4 and 9 of the Law is unfounded and it turns out that the defendant did not refer to any authority in support of his claim that the express application of the Law prohibits employees from entering into contracts for the payment of salaries to third parties. Although the Law clearly states that employers are obliged to "pay each employee" all earned wages, nothing in the Law prohibits employees from transferring their wages to third parties. In fact, Section 9 of the Act expressly permits employers to make deductions from wages or final compensation if the employer makes any deduction for the benefit of the employee either in response to a valid distribution of wages or with the consent of the employee. Furthermore, his claim that the agreement violates the Act was unsustainable in the absence of authoritative support and clear arguments from the defendant.

We further note that, in defendant's response to plaintiff's memorandum, opposing defendant's motion to dismiss in the trial court, defendant initially argued that:

"Section 9 deals with deductions from an employee's wages or final compensation by an employer. The issue at hand does not deal with deductions from an employee's salary or final compensation by the employer. The question at issue is whether the employer is in arrears with the employee's wages.

Assuming section 9 applies to the immediate issues, the facts alleged in the complaint do not satisfy any of the four criteria that would allow the defendant to deduct the employee's gross wages or final compensation and pay the wages or final compensation to a third party. (Emphasis original.)

While the defendants argued in the trial court that section 9 was inapplicable because the agreement did not include a "deduction" of the fees paid to Swavele, the defendants appeared to argue on appeal that the limited basis under section 9 permitted deductions from damages indicating that legislation The agency intends to "prohibit all other deductions." It is not clear whether the defendants attempted to argue that paragraph 5 of the agreement should be considered a "deduction" from Swavely's wages. Regardless of the defendant's position, he has not presented this court with convincing evidence for his claim that the agreement violated the Law.

Moreover, "the right of employees to transfer their wages has long been recognized in this state, and the privilege of using and entering into a wage-handling contract is both a liberty and a property right." State Street Furniture Co. v. Armor & Co. ., 345 Ill. 160, 162, 177 N.E. 702 (1931). "A debt is an asset that can be sold or transferred, subject to the general rules of customary law that determine the rights of the attorney, and the sale of which will not, in the absence of fraud, be the basis for an appeal by the debtor. State Street Furniture Co., 345 Ill. at 166, 177 N.E. 702. Accordingly, defendant's contention here that all wages owed by an employee must be paid to that employee and not to a third party directly violates established Illinois policy regarding the validity of wage distributions.

Furthermore, the respondent cited no authority that the purpose of the Act was to "protect the employee even from his own conduct" by not allowing him to distribute wages to third parties "beyond the limited basis established by law" contrary to the respondent's contention: "The primary purpose of the bill is ensure that employees receive all earned benefits when they leave their employers, and the abuse sought to be remedied is the loss of any of those benefits.” Mueller v. Department of Labor, 187 Ill.App.3d 519, 524, 135 Ill.Dec. 3d 980, 985, 168 Ill.Dec. 68, 589 N.E.2d 182 (1992) (Finding that the public policy underlying the Act was in the interest of workers and taxpayers, the Court held that "an employer's denial of benefits accrued to his financial and social burdens for state, such as reducing the tax base and potentially depleting state aid funds"). Accordingly, defendants' interpretation of the legislative intent of the bill allows defendants to retain wages and commissions earned by deceased employees, particularly It would be more likely to offend employees if the defendant expressly agreed to pay those wages to a third-party beneficiary upon the employee's death, which is the legislative intent behind the bill.

We further briefly note that defendants' theory that enforcement of the agreement would "deprive [Swavely's] estate of the right to receive [his] wages upon his death" has no factual or legal support in this case. There is no evidence that the estate is involved in any litigation for disputed amounts owed to Swavely under the contract. Furthermore, it is clear from the plain language of the contract and from Swavely's trust clause that Swavely expects plaintiff to benefit upon his death. Once the rights of a third-party beneficiary have been assigned, the promisor is deprived of "all interest or right in the subject matter of the promise, including the right to alter, revoke, or rescind; nothing but the performance by the promisor of his promise to a third party No." Pliley v. Phifer, 1 Ill.App.2d 398, 406, 117 N.E.2d 678 (1954). Accordingly, defendant has no standing on behalf of Swavely's estate to assert that the benefit of that estate has been deprived of that estate as a result of plaintiff's present cause of action.

Because public policy favors freedom of contract, this court will not set aside the express intent of the agreement that defendants would pay Swavely's salary and commissions to plaintiff after Swavely's death, unless the agreement is found to clearly violate the law or a known state of public policy. Defendants have failed to make a convincing argument that enforcement of the agreement would violate the Act or be "clearly detrimental to the public good."

For the stated reasons, we reverse the trial court's order dismissing the plaintiff's amended complaint and remand for further proceedings in accordance with that order.

Withdrawal from detention.


footnote.The second point of the plaintiff's objection requests specific performance of the contract, which is not disputed in this appeal.

Judge BURKE gave the court opinion:

LEAVITT, P.J. and GORDON, J. concur.

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