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Swavely v. Freeway Ford Truck Sales Inc.

August 26, 1998

JOAN M. SWAVELY, PLAINTIFF-APPELLANT,
v.
FREEWAY FORD TRUCK SALES, INC., DEFENDANT-APPELLEE.



The opinion of the court was delivered by: Justice Burke delivered the opinion of the court

Appeal from the Circuit Court of Cook County.

Honorable Lee Preston, Judge Presiding.

Plaintiff Joan Swavely appeals from an order of the circuit court granting defendant Freeway Ford Truck Sales, Inc.'s motion to dismiss plaintiff's complaint in which plaintiff alleged defendant owed her money pursuant to a Wage Compensation Agreement (Agreement) executed between defendant and plaintiff's deceased husband, John Swavely (Swavely). On appeal, plaintiff contends 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))(Act) does not render her cause of action as a third-party beneficiary to the Agreement void as against public policy. For the reasons set forth below, we reverse and remand.

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 the Agreement which outlined employment compensations due Swavely for base salary and commissions. The Agreement was to commence retroactively on January 1, 1992, and to terminate on December 31, 1994. Paragraph 5 of the Agreement stated:

"In the event of Mr. John W. Swavely's death, all commissions due or to become due for Mr. John W. Swavely will be paid to his wife, Joan M. Swavely."

On April 3, 1996, plaintiff filed a complaint, as successor trustee of Swavely's declaration of trust, against defendant for accounts stated. Plaintiff alleged that as the named successor trustee of Swavely's declaration of trust dated May 11, 1993, she could maintain a suit against defendant for monies due Swavely pursuant to the Agreement. Defendant filed a motion to dismiss plaintiff's complaint, arguing that the complaint did not allege that plaintiff, as successor trustee of Swavely's trust, "had a contractual agreement with [defendant]," and that nothing set forth in the complaint or the trust documents established that "the Trust [was] entitled to compensation allegedly due [Swavely or plaintiff]." The trial court subsequently entered an order granting plaintiff leave to file an amended complaint.

On July 25, 1996, plaintiff filed a two-count amended complaint against defendant as a creditor beneficiary pursuant to paragraph 5 of the Agreement. Count I of plaintiff's amended complaint was entitled, "Amended Complaint for Accounts Stated," *fn* requesting a judgment for $200,000 covering commissions due Swavely from 1992 through September 15, 1994. Plaintiff also requested an accounting of all of defendant's sales from September 15, 1994, to the date of the amended complaint relating to Swavely's commissions, and payment to plaintiff of any monies due and owing as a result of that accounting.

Defendant filed a motion to dismiss plaintiff's amended complaint, arguing that an agreement to pay an employee's wages to a third party would be in violation of the Act because, based on the Act, "the employee must be paid wages or commissions earned by him," and upon Swavely's death, "his wages would be due his estate." Defendant further argued that any agreement to pay Swavely's wages and commissions to a third party "would be in violation of the mandatory language of the statute that the compensation be paid directly to the employee."

Plaintiff filed a memorandum in opposition to defendant's motion to dismiss count I of her amended complaint, arguing that defendant's motion to dismiss should be denied because, pursuant to the Agreement, she was a third-party beneficiary who was entitled to payment of Swavely's wages and commissions without opening his estate. Defendant, in reply to plaintiff's memorandum, argued that the clear language of the Act demonstrated that the General Assembly intended to protect employees by not allowing them to "assign or contract" wages or final compensation to third parties except under limited circumstances set forth in the Act.

On April 11, 1997, the trial court entered an order striking plaintiff's amended complaint with prejudice as to plaintiff individually. The trial court made a specific finding that its ruling did not act as a bar to a cause of action by Swavely's estate if the estate should file a complaint. This appeal followed.

Plaintiff contends that, as the wife of Swavely, and pursuant to the express language of paragraph 5 of the Agreement, she was a third-party beneficiary to the contract between Swavely and defendant, having the status of either a creditor beneficiary or donee beneficiary, who was therefore entitled to payment of Swavely's wages and commissions upon his death without having to open Swavely's estate. Plaintiff maintains that because her rights as a third-party beneficiary under the Agreement vested upon Swavely's death, she is able to directly enforce payment of his commissions pursuant to the Agreement as either a creditor or donee beneficiary. Defendant does not respond to, and therefore does not refute, plaintiff's argument that she is a third-party beneficiary under the Agreement. Instead defendant argues that a contractual provision between an employer and employee to pay the employee's wages to the employee's spouse upon the employee's death violates the Act and, therefore, renders the contractual provision void.

A trial court should not dismiss an action on the pleadings unless it is clearly apparent that no set of facts can be proven which will entitle the plaintiff to relief. Burdine v. Village of Glendale Heights, 139 Ill. 2d 501, 504, 565 N.E.2d 654 (1990). When the legal sufficiency of a complaint is challenged by a section 2--619 motion to dismiss, all well-pleaded facts and reasonable inferences are accepted as true (Hermitage Corp. v. Contractors Adjustment Co., 166 Ill. 2d 72, 84-85, 651 N.E.2d 1132 (1995)), and a reviewing court must determine whether the allegations set forth in the complaint, interpreted in a light most favorable to the plaintiff, are sufficient to set forth a cause of action upon which relief may be granted (Burdine, 139 Ill. 2d at 505).

Plaintiff first argues 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 the pre-existing duty or liability of [defendant] to be liable contractually to [plaintiff], as a third party beneficiary, for any monies due and owing [Swavely] upon the death of [Swavely]." Plaintiff further argues that even if this court should determine that plaintiff was not a creditor beneficiary under the Agreement, she can still maintain her cause of action as a third-party donee beneficiary.

"In Illinois, an individual not a party to a contract may only enforce the contract's rights when that contract's original parties intentionally enter into the contract for the direct benefit of the individual." Cahill v. Eastern Benefit Systems, Inc., 236 Ill. App. 3d 517, 520, 603 N.E.2d 788 (1992). If a contract is entered into for the direct benefit of a third person, the third person may sue for breach of the contract even though he or she is not a party to the contract. Whether a party is a third-party beneficiary depends on the intent of the contracting parties and is determined on a case-by-case basis. Midwest Concrete Products v. LaSalle National Bank, 94 Ill. App. 3d 394, 396, 418 N.E.2d 988 (1981). Courts must initially determine whether the benefit in the contract is direct to the third person or is but an incidental benefit to the third person arising out of the contract. Cahill, 236 Ill. App. 3d at 520. "In making this determination, it must appear from the language of the contract when properly construed that the contract was made for the direct benefit of the third person and that the benefit was not merely incidental." (Emphasis in original.) Midwest Concrete Products, 94 Ill. App. 3d at 396, citing Young v. General Insurance Co. of America, 33 Ill. App. 3d 119, 337 N.E.2d 739 (1975). "The promisor's intention must be shown by an express provision in the contract identifying the third-party beneficiary." Cahill, 236 Ill. App. 3d at 520. Because "people usually stipulate for themselves, and not for third persons, a strong presumption obtains in any given case that such was their intention, and that the implication to overcome that presumption must be so strong as to amount practically to an express declaration." Therefore, "the contract must be undertaken for the plaintiff's direct benefit and the contract itself must affirmatively make this intention clear." Waterford Condominium v. Dunbar Corp., 104 Ill. App. 3d 371, 373-74, 432 N.E.2d 1009 (1982). Illinois courts have distinguished third-party donee beneficiaries from third-party creditor beneficiaries in determining what rights each has with regard to a third-party contract. A donee beneficiary is a third party to whom the benefit comes without cost, such as a donation or gift. A creditor beneficiary is a third party to whom a pre-existing duty or liability is owed. Hickox v. Bell, 195 ...


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