Swavelyl v. Freeway Ford Truck Sales

THIRD DIVISION
August 26, 1998

No. 1--97--1826

JOAN M. SWAVELY, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
)
v. )
)
)
FREEWAY FORD TRUCK SALES, INC., ) Honorable
) Lee Preston,
Defendant-Appellee. ) Judge Presiding.

JUSTICE BURKE delivered the opinion of the court:

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,"
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 preexisting 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 preexisting duty or
liability is owed. Hickox v. Bell, 195 Ill. App. 3d 976, 993, 552 N.E.2d 1133 (1990). In the typical creditor beneficiary case, A
and B enter into a contract and thereafter B and C contract to have
C perform B s obligation to A. A then becomes the third-party
beneficiary to the contract between B and C. Robson, 514 F. Supp.
at 102. In contrast, a donee beneficiary may acquire rights even
though he is unaware that he has been made a beneficiary to the B-C
contract. Robson, 514 F. Supp. at 103. Additionally, prior to the
B-C contract, the donee beneficiary may have had no relationship
whatsoever with B or C. Robson, 514 F. Supp. at 103.
Here, plaintiff maintains that Robson v. Robson, 514 F. Supp. 99 (N.D. Ill. 1981), is dispositive of this court's determination
as to whether she can maintain her action against defendant as a
third-party beneficiary. In Robson, the plaintiff's husband, Ray
Robson Jr., entered into a contract with his father, Ray Robson Sr.
The contract provided that, in the event Robson Jr. predeceased his
father, Robson Jr.'s company shares were to become the property of
Robson Sr., who thereafter was to pay $500 per month from the
proceeds of the company to the plaintiff for five years immediately
following Robson Jr.'s death or until the plaintiff remarried.
Robson Jr. and Robson Sr. modified the contract before Robson Jr. s
death by deleting the portion of the contract providing payment to
the plaintiff. Upon Robson Jr.'s death, the plaintiff filed suit
against Robson Sr., arguing that she was a third-party beneficiary
with vested rights that were being infringed by Robson Sr.'s
refusal to perform under the contract. Robson, 514 F. Supp. at
100-101.
The Robson court found that the plaintiff was a donee
beneficiary to the contract because [t]he contracting parties ***
clearly intended the contract to directly benefit not only
themselves, but also their wives, with respect to whom specific
provisions were drafted. Robson, 514 F. Supp. at 102. However,
because Robson Jr. and Robson Sr. modified the contract before
Robson Jr.'s death, the court held that the plaintiff was unable to
"affect the decisions made by the contracting parties" because her
rights as a donee beneficiary had not vested. The Robson court
reasoned that [w]here the donee beneficiary s right is contingent
upon the occurrence of certain events, it does not vest until the
occurrence of those events. Robson, 514 F. Supp. at 104, quoting
Dudley v. Uptown National Bank of Moline, 25 Ill. App. 2d 514, 528,
167 N.E.2d 257 (1960), and Piley v. Phifer, 1 Ill. App. 2d 398,
407-08, 117 N.E.2d 678 (1954).
We find merit in plaintiff's argument here that paragraph 5 of
the Agreement was an express provision identifying her as a third-
party donee beneficiary entitled to the direct benefit of Swavely's
wages and commissions under the Agreement upon Swavely's death.
Because plaintiff in this case, like the plaintiff-wife of the
deceased contracting party in Robson, was to receive a benefit from
the Agreement that came without cost as a donation or gift, as
opposed to the satisfaction or discharge of a preexisting duty or
liability, we find that plaintiff was a donee beneficiary under the
Agreement. As in Robson, plaintiff's third-party beneficiary
rights here were contingent upon the death of her husband, the
contracting party. Because, unlike the contracting parties in
Robson, defendant and Swavely did not modify the Agreement prior to
Swavely s death, plaintiff s rights as a third-party donee
beneficiary vested upon Swavely s death. Accordingly, it is
apparent from the clear language of paragraph 5 of the Agreement
that the intention of defendant and Swavely was that plaintiff
would directly benefit by receiving Swavely's wages and commissions
upon his death. We therefore find that the trial court erred in
dismissing plaintiff's amended complaint; plaintiff has a legally
cognizable action for breach of the Agreement, notwithstanding that
she was not a direct party to the Agreement.
Plaintiff also argues that the Act does not render her action
void as against public policy. Plaintiff contends that defendant's
argument that the Act bars her from maintaining this cause of
action from the standpoint that the legislature intended wages and
commissions to be paid to the wage earner, and not to a third
party, has no merit. Plaintiff argues that "the assignment of the
preexisting duty or liability by [defendant] to pay to [plaintiff]
upon [Swavely's] death moneys due and owing [Swavely], is not
against public policy ***" because our courts have "recognized the
validity of such an assignment."
Defendant argues that paragraph 5 of the Agreement is void and
unenforceable because it is violative of the Act, which "[b]ars an
employee from entering into a contract to pay his wages to a third
party even his wife." Defendant asserts that the wording of the
Act mandatorily requires "payment to the employee not to a third
party." Defendant also argues that, while the Act contains four
bases on which an employer may make deductions from an employee's
wages, "nothing in [the Act] allows an employee to direct all his
wages to be paid to a third party." Defendant therefore argues
that "it is clear from the plain meaning of the words of [the Act]
that the General Assembly intended to protect the employee and not
allow an employee to assign or contractually have his wages or
final compensation paid to a third party with the exception of a
valid wage assignment." According to defendant, "It is clear that
the General Assembly wants to protect the employee even from his
own acts. To do otherwise would allow an employee to assign his
wages to a third party in excess of the limited basis provided by
law." Defendant further asserts that the fact that the third party
in this case is the wife of Swavely, the employee, "does not alter
the prohibition." Defendant contends that "if the employee could
contract to have his wages paid to his wife without violating the
statute, he could also contract to have his wages paid to an
unrelated third party without violating the statute." Defendant
argues that "to allow an employee to contract to pay his wages to
a third party would deprive his estate of the right to the
employee's wages on his death." In arguing that the Act bars
plaintiff from maintaining her cause of action, defendant asserts
that "neither party could find any previous case addressing this
issue."
Because the construction of a statute is a question of law,
the standard of review on this issue is de novo. Lucas v. Latkin,
175 Ill. 2d 166, 171, 676 N.E.2d 637 (1997). There is no exception
to the rule that a contract which violates a valid statute is void,
as 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 that contract is illegal either as a
matter of Illinois or Federal law." American Buyers Club of Mt.
Vernon v. Grayling, 53 Ill. App. 3d 611, 613, 368 N.E.2d 1057
(1977). The question of whether a contract is enforceable under
the public policy of the State is a conclusion of law (Rome v.
Upton, 271 Ill. App. 3d 517, 520, 648 N.E.2d 1085 (1995)) and turns
on the particular facts and circumstances of each case (O'Hara v.
Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 341-42, 537 N.E.2d 730 (1989)).
"As a general rule, courts will not enforce a private
agreement which is contrary to public policy." Holstein v.
Grossman, 246 Ill. App. 3d 719, 725, 616 N.E.2d 1224 (1993).
Public policy is the legal principle that no one may lawfully do
that which has the tendency to injure the welfare of the public.
The public policy of the state is reflected in its constitution,
statutes and judicial decisions. Holstein, 246 Ill. App. 3d at
725-26. "Our courts apply a strict test in determining whether a
contract violates public policy." Holstein, 246 Ill. App. 3d at
726. Because public policy itself strongly favors freedom to
contract, "[a] *** court will not declare a contract illegal unless
it expressly contravenes the law or a known public policy of this
State." Holstein, 246 Ill. App. 3d at 726. Agreements are not
void as against public policy unless they are clearly contrary to
what the constitution, statutes or court decisions have declared to
be the public policy or unless they are "manifestly injurious to
the public welfare." Schumann-Heink v. Folsom, 328 Ill. 321, 330,
159 N.E.2d 250 (1927).
Section 115 of the Act provides, in pertinent part:
"3. Every employer shall be required, at
least semi-monthly, to pay every employee all
wages earned during the semi-monthly pay
period. Wages of executive, administrative
and professional employees, as defined in the
Federal Fair Labor Standards Act of 1939, may
be paid once a month. Commissions may be paid
once a month.
***
4. All wages earned by any employee
during a semi-monthly or bi-weekly pay period
shall be paid to such employee not 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 not later than 7 days
after the end of the weekly pay period in
which the wages were earned. All wages paid
on a daily basis shall be paid insofar as
possible on the same day as the wages were
earned, or not later in any event than 24
hours after the day on which the wages were
earned. Wages of executive, administrative
and professional employees, as defined in the
Federal Fair Labor Standards Act of 1938, may
be paid on or before 21 calendar days after
the period during which they are earned.
The terms of this Section shall not
apply, if there exists a valid collective
bargaining agreement which provides for a
different date or for different arrangements
for the payment of wages.
***
9. Except as hereinafter provided,
deductions by employers from wages or final
compensation are prohibited unless such
deductions are (1) required by law; or (2) to
the benefit of the employee; or (3) in
response to a valid wage assignment or wage
deduction order; or (4) made with the express
written consent of the employee, given freely
at the time the deduction is made.
***
The Department shall establish rules to
protect the interests of both parties in cases
of disputed deductions from wages. Such rules
shall include reasonable limitations on the
amount of deductions beyond those required by
law which may be made during any pay period by
any employer." (Emphasis added.) 820 ILCS
115/3-4, 9 (West 1997).
Defendant s argument that the Agreement violates sections 3,
4 and 9 of the Act has little merit, as evidenced by the fact that
defendant cites to no authority to support his assertions that the
Act s plain language mandatorily bars an employee from entering
into a contract to pay wages to a third party. Although it is
clear that the Act mandates that employers shall pay every
employee all wages earned, nothing in the Act directly prohibits
an employee from assigning his wages to a third party. In fact,
Section 9 of the Act specifically states that deductions by
employers from wages or final compensation are permissible if they
inure to the benefit of the employee or are in response to a valid
wage assignment or any deductions with the consent of the employee.
Moreover, in the absence of supporting authority and clear argument
by defendant, its argument that the Agreement is violative of the
Act fails.
We further note that in defendant's reply to plaintiff's
memorandum in opposition to defendant's motion to dismiss before
the trial court, defendant originally argued that:
"Section 9 relates to deductions made by
the employer from the employee's wages or
final compensation. In the instant matter,
the issue does not concern the employer
deducting sums from the employees wages or
final compensation. The issue involved is
whether the employer owed wages to the
employee.
Assuming arguendo that Section 9 applied
to the instant matter, the facts set forth in
the Complaint do not satisfy any of the four
criteria that would allow the Defendant to
deduct the employee's total wages or final
compensation and pay the wages or final
compensation to a third party." (Emphasis in
original.)
While it appears that defendant argued in the trial court that
section 9 did not apply because the Agreement did not involve a
"deduction" of pay from Swavely, defendant appears to argue on
appeal that the limited bases set forth in section 9 allowing
deductions from compensation indicate that the legislature intended
that "all other deductions are prohibited." It is unclear whether
defendant is attempting to argue that paragraph 5 of the Agreement
should be considered a "deduction" in Swavely's pay. Regardless of
defendant's position, it has failed to provide convincing evidence
to this court to support its claim that the Agreement violates the
Act.
Additionally, an employee s right to make an assignment of
his wages has long been recognized in this State, and the privilege
of using and contracting for the disposal of wages is both a
liberty and a property right. State Street Furniture Co. v.
Armour & Co., 345 Ill. 160, 162, 177 N.E. 702 (1931). A debt is
property, which may be sold or assigned, subject to the ordinary
rules of the common law in determining the rights of the assignee,
and, when untainted with fraud, its sale offers no ground for
complaint by the debtor. State Street Furniture Co., 345 Ill. at
166. Therefore, defendant's assertion here, that all wages earned
by an employee require payment to that employee and not to a third
party, is directly contrary to established Illinois policy
regarding the validity of assignments of wages.
Moreover, defendant has cited no authority for its assertion
that the purpose of the Act is to "protect the employee even from
his own acts" by not allowing him to assign his wages to a third
party "in excess of the limited basis provided by law." Contrary
to defendant's conention, the "primary objective of the Act is to
ensure employees receive all earned benefits upon leaving their
employer and the evil it seeks to remedy is the forfeiture of any
of those benefits." Mueller v. Department of Labor, 187 Ill. App.
3d 519, 524, 543 N.E.2d 518 (1989). See also, People ex rel.
Martin v. Lipkowitz, 225 Ill. App. 3d 980, 985, 589 N.E.2d 182
(1992) (in determining that the public policy underlying the Act
inures to the benefit of both workers and taxpayers, the court held
that the "employer's denial of benefits earned by its employees
burdens the State financially and socially, such as by decreasing
the tax base and potentially depleting State assistance funds").
Therefore, defendant's interpretation of the legislative intent of
the Act, allowing defendant to hold a deceased employee's earned
wages and commissions after defendant specifically contracted to
pay those wages to a third party beneficiary upon the death of the
employee, would be more likely to offend the legislative intent
behind the Act.
We further briefly observe that defendant's theory, that
enforcing the Agreement would "deprive [Swavely's] estate of the
right to [his] wages on his death," has no support in either the
facts of this case or in law. There is no evidence in the record
that the estate is involved in any litigation regarding contested
sums owed Swavely under the Agreement. Moreover, it is manifestly
clear from the plain language of the Agreement and the terms of
Swavely's trust that Swavely intended plaintiff to receive benefits
upon his death. Once the rights of a third-party beneficiary vest,
the promisor is deprived of "any interest or right in the subject
matter of the promise, including the right to alter, rescind or
revoke it; nothing remains except that the promisor carry out his
promise to the third-party beneficiary." Pliley v. Phifer, 1 Ill.
App. 2d 398, 406, 117 N.E.2d 678 (1954). Defendant, therefore, has
no standing to argue on behalf of Swavely's estate that the estate
has been deprived of a benefit due to plaintiff's present cause of
action.
Because public policy favors freedom to contract, this court
will not subvert the manifest intention of the Agreement that
defendant would pay Swavely's wages and commissions to plaintiff
upon Swavely's death, absent a finding that the Agreement expressly
contradicts the law or a known public policy of the State.
Defendant has failed to provide a convincing argument that
enforcing the Agreement would either violate the Act or be
"manifestly injurious to the public welfare."
For the reasons stated, we reverse the trial court's order
dismissing plaintiff's amended complaint, and remand the cause for
further proceedings consistent with this order.
Reversed and remanded.
LEAVITT, P.J., and GORDON, J., concur.