Midcoast Aviation, Inc. v. General Elec. Credit Corp., 89-2462

• Decision Date: 30 August 1990
• Docket Number: No. 89-2462,89-2462
• Citation: 907 F.2d 732
• Parties: MIDCOAST AVIATION, INC., Plaintiff-Appellee, v. GENERAL ELECTRIC CREDIT CORP., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 732

907 F.2d 732

MIDCOAST AVIATION, INC., Plaintiff-Appellee, v. GENERAL ELECTRIC CREDIT CORP., Defendant-Appellant.

No. 89-2462.

United States Court of Appeals Seventh Circuit.

Argued April 17, 1990.

Decided July 24, 1990.

Rehearing and Rehearing En Banc

Denied Aug. 30, 1990.

Gene Brockland, Paul Seele, St. Louis, Mo., Richard L. Schnake, Matthew F. Trokey, Neale, Newman, Bradshaw & Freeman, Springfield, Mo., for plaintiff-appellee.

Bruce D. Livingston, Jim J. Shoemake, David Streubel, Guilfoil, Petzall & Shoemake, St. Louis, Mo., for defendant-appellant.

Before FLAUM and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge.

This is a diversity action involving Illinois law. In the court below Appellee Midcoast Aviation, Inc. sought to recover quantum meruit, or "as much as it deserved," from appellant General Electric Credit Corp. ("GECC"). Trial was held before a jury. Proof was put on and jury instructions were given, all subject to objections. The jury found Midcoast deserving of recovery, and deserving in the amount of $93,988.55. GECC thought the jury never should have received the case: it made a motion for directed verdict at the end of Midcoast's case and a motion for j.n.o.v. after the jury returned its verdict. The court below was of another mind: it denied both motions. It also entered judgment against GECC.

GECC now appeals. It believes that Midcoast never established a legal case to recover quantum meruit. Moreover, GECC believes that the trial court improperly instructed the jury on the elements necessary to establish quantum meruit liability and the standard necessary to measure quantum meruit recovery. GECC also believes the court misruled on certain questions of evidence. We conclude that Midcoast presented a legally sufficient case to recover quantum meruit. We conclude too that the trial court properly ruled on questions of evidence and properly instructed the jury on the elements necessary to establish quantum meruit liability. Nevertheless, a new trial on damages is necessary, for we also conclude that the trial court's instruction on the standard necessary to measure quantum meruit recovery was deficient.

I.

This case involves three parties, cohorts in a business adventure. ¹ Leading the adventure was American Aviation Industries, Inc. ("AAI"). AAI had big ideas for the conversion of Jetstar aircraft into Fanstar aircraft. Jetstars were old clunkers, cramped and noisy, and they spent a lot of time at the fuel pump. AAI wanted to convert these clunkers into modern aircraft by replacing their noisy, fuel inefficient engines with quiet, fuel efficient ones. It also wanted to redo the Jetstar's avionics and interior. All of this would allow the converted Jetstars--the Fanstars--to fly more people, more comfortably, further distances, to more noise-sensitive airports, using less fuel. What AAI wanted to do and what it could do, however, were two different things. AAI was only an idea shop. The "Fanstar" project needed money to take off, money that AAI did not have.

So AAI sought money. It found GECC, which had plenty. For various reasons GECC liked AAI's idea, and decided to finance the project.

With GECC's money, AAI got "Fanstar" off the ground. Stage one was to convert a Jetstar to a Fanstar in a manner worthy of Federal Aviation Administration certification. With GECC loans, AAI obtained a Jetstar to convert. This was the "prototype" Jetstar. Stage two was to market the future Fanstar's modern conveniences. The prototype could not be used for this. Its conversion, tailored to impress FAA technocrats not aircraft consumers, would leave its interior in a state of disarray. For marketing purposes AAI needed another Jetstar, the interior of which it could beautify in Fanstar fashion. This Jetstar, the "demonstrator," it obtained in July of 1985 from GECC. AAI rented the demonstrator from GECC for a term of five years.

Concurrent with the execution of this lease, AAI and GECC entered into a "Retrofit Agreement." The Retrofit Agreement designated GECC as the "Customer" and AAI as the "Contractor" and called for AAI to modernize GECC's plane. Included within the scope of that modernization was an "interior refurbishment." As AAI was an idea shop only, it did not have the resources to modernize aircraft or refurbish interiors. To do this, it had to hire a production facility. One such facility was operated by Midcoast. In July or August 1985 AAI hired Midcoast to refurbish the interior of GECC's Jetstar ("the 1985 deal"). Pursuant to this deal, Midcoast refurbished the Jetstar's interior in accord with the Retrofit Agreement between GECC and AAI. Midcoast was paid by AAI and, in one instance, by GECC. AAI then took the plane to the 1985 National Business Aircraft Association ("NBAA") convention where it could be viewed by aircraft consumers.

It dawned on Midcoast that if successful the Fanstar project could be a business bonanza. Midcoast knew that the project had the potential to modernize hundreds of Jetstars, not just GECC's, and it knew that if the potential was realized, the project would use lots of production facility services. Midcoast wanted to provide those services. Thus, it started negotiating with AAI to be the exclusive "production facility" for the Fanstar project. The negotiations continued into 1986, yet no agreement was reached. AAI was coy; it would not allow Midcoast on board unless Midcoast shouldered some of the project's growing financial burdens. This Midcoast was loath to do. It was aware, as was the whole aviation industry, that AAI was on shaky financial ground, completely bereft of its own funds, in debt to a squadron of creditors, and entirely dependent on GECC for the money that kept the Fanstar project flying.

In the summer of 1986 AAI and GECC decided that the interior of GECC's plane had to be better. The 1986 NBAA convention was fast approaching and both wanted it better by then. AAI asked Midcoast to do the work. Midcoast saw an opportunity to make points with AAI. A deal was crafted whereby Midcoast would do the interior ("the 1986 deal"). This deal (and the work it called for) was separate and distinct from the one AAI and Midcoast struck in 1985. Under the understanding of this one, if Midcoast and AAI reached a long-term production facility agreement Midcoast would roll over the cost of the work and recoup it through work done in the future. If no such agreement was reached, however, Midcoast immediately would demand payment.

Before working on the 1986 deal Midcoast wanted assurances that it would get paid. In late July, 1986, it went to GECC looking for those assurances. A meeting was held at GECC's headquarters. Midcoast made it clear to GECC that it knew AAI's role in the project was only that of marketing. It also made it clear that it knew where the money for the project came from--GECC. Midcoast indicated that before it did any work, including the proposed interior work, it needed assurances from GECC that GECC would finance the Fanstar project to certification. The assurances were given.

Midcoast then went to work. Pursuant to the 1985 deal Midcoast had "refurbished" the demonstrator's interior. Now it completely modernized it, enlarging it and providing it with sleeping accommodations. The timetable for completing the 1986 deal was tight: it had to be finished before the 1986 NBAA convention. In September 1986 Midcoast was reminded of this. At a "first-flight" gathering for the Fanstar prototype both AAI and GECC emphasized to Midcoast the need for completing the interior by conventiontime, and both exhorted Midcoast to find a way to get the job done. Midcoast did so, putting about $94,000 worth of labor and material into GECC's plane, and putting it there on time.

Attempts by Midcoast and AAI to reach a long-term agreement continued throughout Midcoast's 1986 work and after it. They were not fruitful. The negotiations eventually stalled, and at the end of 1986, they crashed. AAI awarded the long-term contract to another production facility. Midcoast was out. Since it no longer had the prospect of a long-term contract into which it could roll over the costs of its 1986 work, Midcoast billed AAI. AAI, in turn, submitted the bill to GECC.

Back in June of 1986 AAI and GECC had entered into a "new loan" agreement whereby GECC loaned AAI $2.5 million so AAI could pay its bills. AAI, however, could not pay as it pleased. One condition of the new loan was that GECC would control the disbursement of the loan funds. It would "pay" only those bills of AAI that were essential to the Fanstar project. Thus GECC had complete discretion over which of AAI's bills were paid and which were not. Midcoast's was not. Since Midcoast and AAI had failed to reach a long-term production facility agreement, GECC considered Midcoast old hat. Accordingly, all payments to Midcoast were grounded.

Midcoast then sued AAI and GECC: AAI on a claim based on contract; GECC on a claim based on quasi-contract. Midcoast's claim against AAI was an empty success. Midcoast won a default judgment, but the judgment appears worthless. It fared better against GECC. It won a judgment after jury trial for $93,988.55, one that holds its worth.

GECC now seeks the reversal of that judgment. Its success in obtaining that reversal depends on the Illinois law of quasi-contract and quantum meruit.

II.

Under Illinois law, one may become obligated to another by quasi-contract. Derived from civil law, quasi-contract is " 'an obligation similar in character to that of a contract, but which arises not from an agreement of parties but from some relation between them.' " Board of Highway Comm'rs v. City of Bloomington, 253 Ill. 164, 97 N.E. 280, 284 (1911) (quoting texts on Roman and civil law). "[T]he obligation arises not from consent ... but from the law or natural equity"; id.; it "exists from an implication of law that arises from the...