The case involves a dispute between ICG Link, Inc., a website development and hosting company, and three defendants: Nashville Sports Leagues, LLC; TN Sports, LLC; and their founder Philip Steen. ICG filed a lawsuit alleging breach of contract and unjust enrichment due to non-payment for website development services. The trial court determined there was no express contract because mutual assent was lacking but recognized a quasi-contract, awarding ICG the reasonable value of its services after deducting costs related to website repairs incurred by the defendants. The court also ruled that Steen was personally liable for the judgment. On appeal, the court affirmed the existence of a quasi-contract and Steen's personal liability but modified the monetary award to $13,952.88, affirming other aspects of the trial court's decision. The background includes the formation of Nashville Sports by Steen in 2003 and the subsequent establishment of TN Sports in 2007, which provided recreational sports leagues and relied on a website developed by ICG to manage its operations and member engagement.
In spring 2007, Mr. Eisenhower began working for ICG and recommended Mr. Steen transfer his website account to ICG for ongoing maintenance. Following Mr. Eisenhower's departure in fall 2007, Greg Jones took over the maintenance of the TN Sports website, charging $85/hour, billed monthly, alongside hosting services that initially cost $249.95/month but was later reduced to $50/month after a year. As TN Sports grew, the existing website, built in the early 2000s, required significant updates. By late 2008, Mr. Jones, familiar with TN Sports's needs, advised Mr. Steen to build a new website. In January 2008, Mr. Jones provided a quote for the new site, totaling $12,622.50 for 148.5 hours of work. Mr. Steen approved the project, which commenced in February 2008, but the site launched in July 2008 was plagued with issues, including administrative access difficulties and user navigation problems. In September 2008, Mr. Steen hired TN Geeks, Inc. and Robert Blackford to assess the situation, concluding that the cost to fix the issues exceeded that of creating a new site. By this time, Mr. Steen's account with ICG had escalated from $4,898.49 in January 2008 to over $30,000 by September 2008, with no payments made except for hosting fees. After ICG president Jack Massari reached out in October 2008 regarding unpaid invoices, Mr. Steen made a $1,500 payment, but website problems continued unresolved.
Mr. Steen's account balance led Mr. Massari to instruct ICG employees to delay work on the TN Sports website, resulting in the replacement of programmer Greg Jones with another employee unfamiliar with the project. By November 2008, after unsuccessful email negotiations between Steen and Massari regarding the website and the account balance, Steen decided to cease collaboration with ICG. Subsequently, ICG Link filed a complaint on April 15, 2009, in Davidson County Chancery Court for unpaid invoices, initially naming Steen and Nashville Sports Leagues, LLC as defendants, later amending it to include TN Sports, LLC. ICG claimed the defendants unreasonably delayed payment, constituting a breach of contract, and sought the outstanding amount of $30,107.06. Alternatively, ICG asserted unjust enrichment for services rendered without payment, holding Steen liable individually for failing to disclose TN Sports as the principal.
The defendants countered that ICG had materially breached the contract by not delivering an effective website. They claimed $902.50 for consultations with TN Geeks and Design615 and $20,400 for a new website from iDesign. ICG acknowledged the contract but contended the agreement was merely an estimate. A bench trial took place on July 6, 2010, with testimonies from ICG's president and an employee, as well as from Steen and a website developer from Design615. Key issues included whether the Quote reflected the actual agreement, with evidence showing a time-stamped email from Jones to Steen containing the Quote, which detailed project specifications but lacked a comprehensive description of features.
The Quote outlines the estimated hours required to develop features for a website, totaling 148.5 hours at an hourly rate of $85.00, resulting in a total cost of $12,622.50. The breakdown includes hours allocated for various tasks such as design, database layout, content management, and team management functionalities. No further details regarding the scope or nature of services by ICG are provided in the Quote.
Witnesses Mr. Steen and Mr. Massari provided conflicting testimonies about the business arrangement between TN Sports and ICG. Mr. Massari explained ICG's billing practices, emphasizing that estimates are common but not binding and that the final costs can vary significantly based on the detail of the scope of work, which is often unclear. He acknowledged that he did not review the Quote before it was issued and was unaware of the commitment to complete the site by March 18, 2008. He attributed issues with the website to changes requested by Mr. Steen during development and his instruction to delay the project.
In contrast, Mr. Steen asserted that the Quote constituted a binding contract for the website's construction, confirming his agreement to the quoted price of $12,622.50 and the completion deadline of March 17, 2008, without prior requests for modifications. He maintained that he only sought repairs for existing issues before finalizing the agreement.
Mr. Steen provided extensive testimony regarding defects in the website, highlighting "global" issues affecting the site as a whole, such as user account duplication, navigation flaws, browser compatibility failures, and lack of confirmation for user inputs. He confirmed these issues were discussed with Mr. Jones prior to the project's commencement. Upon reviewing the 27 major items listed in the Quote, Mr. Steen identified that 17 had significant functionality problems or were not implemented at all. Most problems were evident at the website's launch in July 2008, with others surfacing later. Communication issues with ICG arose, leading Mr. Steen to cease collaboration with them.
Expert testimonies from Jay Johnston and Robert Blackford diverged on the website's programming quality. Johnston asserted it was developed using PHP5, adhering to industry standards, while Blackford criticized it for utilizing a shorthand version called "Smarty," which he deemed inadequate for the site's operational needs.
In the court's memorandum opinion issued on October 28, 2010, it concluded that no mutual assent existed for a formal contract, yet acknowledged ICG's service provision warranted compensation. The court ruled a quasi-contract was justifiable, leading to a payment owed of $27,806.34 plus post-judgment interest from an initial invoice total of $30,107.06, after minor deductions. Additionally, Mr. Steen was held personally liable due to his failure to identify TN Sports, LLC in dealings with ICG, presenting himself instead as "Nashville Sports Leagues," which the court found unsubstantiated based on TN Sports's registration. The court also awarded the Defendants $1,157.50 on their counterclaim for breach of contract, covering expenses incurred for attempted repairs by TN Geeks and Mr. Blackford.
Defendants TN Sports and Mr. Steen appealed a court decision denying recovery for costs associated with a new website, totaling $20,400, and consulting fees of $855.00. They challenged the trial court's imposition of a quasi-contract and the valuation of ICG's work at $27,806.34, arguing that there was an express contract that ICG breached, or alternatively, that the website produced was defective and lacked value. Mr. Steen additionally contended that he should not be held personally liable, as ICG was aware it was contracting with TN Sports, not him individually.
The standard of review for contract formation and interpretation is de novo, meaning the appellate court will independently evaluate these legal issues without presuming the trial court's conclusions are correct. Conversely, findings of fact by the trial court are presumed correct unless the evidence suggests otherwise.
The document also explains the nature of contracts, distinguishing between express, implied, written, and oral contracts. An enforceable contract must exhibit mutual assent, sufficient consideration, legality, and definiteness. Tennessee law recognizes two types of implied contracts: those implied in fact, which arise from mutual intent and are similar to express contracts, and those implied in law (quasi-contracts), which are established by law based on reason and justice without mutual assent.
The trial court concluded that no express contract existed between the parties, primarily relying on testimonies from Jack Massari, President of ICG, and Philip Steen. Massari asserted that ICG Link’s estimate was non-binding regarding hours, costs, or product completion, while Steen claimed he accepted a quote of $12,622.50, refusing to pay more. This led the court to determine a lack of mutual assent, resulting in no enforceable contract. However, the court acknowledged that ICG provided a website to TN Sports, which used it and was expected to compensate ICG, thus establishing a quasi-contract. The trial court ordered TN Sports to pay $27,806.34 for the value of services received. Upon review, it was found that while the trial court correctly ruled out an enforceable agreement due to indefiniteness of terms, the assessed value of services was overestimated. The evidence indicated a value of $15,000, leading to a revised judgment of $13,952.88 due to other deductions. Additionally, Mr. Steen was held liable individually. The legal principles emphasized that a contract requires mutual assent, sufficient consideration, and definiteness in terms to be enforceable, with the court noting that ambiguity in essential elements can prevent contract formation.
The Court highlighted that while a specific price of $12,622.50 was established, the agreement lacks sufficient detail regarding what TN Sports was to receive in exchange. The absence of clear standards to evaluate the adequacy of the website provided further complicates the situation, making it difficult to ascertain whether a breach occurred or to enforce the contract. This case underscores the complexities inherent in information technology contracts, which often involve ambiguous terminology and expectations. Legal scholar Michael D. Scott points out the need for clarity in defining the development process of software, as misunderstandings can arise from seemingly minor changes that require significant revisions. Furthermore, ownership issues concerning reusable components and proprietary information must be explicitly addressed to avoid disputes. Consequently, the Court concluded that the vague terms in the agreement render it unenforceable as an express contract. It then moved to consider the possibility of a quasi-contract to determine if ICG could claim payment for services rendered.
In cases where a contract is deemed invalid or unenforceable, courts may enforce a quasi-contractual obligation to prevent unjust enrichment. This is recognized as a quantum meruit or quasi-contract action, serving as an equitable remedy in lieu of a formal contract claim. A party may recover the reasonable value of goods and services provided if five conditions are met: (1) there is no existing enforceable contract on the subject matter; (2) the party seeking recovery provided valuable goods and services; (3) the other party received those goods and services; (4) it is understood that compensation was expected; and (5) it would be unjust for the benefiting party to retain the goods or services without payment. In this case, all five criteria are satisfied. There is no enforceable contract between ICG and TN Sports, ICG provided valuable services despite some defects in the website, TN Sports received the website, ICG expected payment, and it would be unjust for TN Sports to keep the benefits without compensating ICG.
Consequently, ICG may seek damages in equity for its work on the TN Sports website, as a quasi-contract implies a legal promise to pay for received goods and services. Recovery is limited to the value of the services rather than a contract price, and courts require proof of this value, which does not need to be exact but must be estimable. ICG bears the burden of proving the value of its services. The trial court determined that, despite some defects, the website was functional and valued ICG's services at $27,806.34, calculated from TN Sports' outstanding balance based on ICG's billing statements, including both development and hosting charges.
Mr. Massari testified that ICG adjusts its billing rates at its discretion, with the rate for Mr. Steen changing from $85.00 to $95.00 per hour. Mr. Steen acknowledged the initial rate but disputed the change. The court determined that the agreed-upon rate for ICG's development services was $85.00 per hour, based on evidence including email exchanges. As a result, TN Sports was overcharged $2,212.31 for 202.5 hours billed at the higher rate.
Regarding unpaid hosting fees, the court ruled that TN Sports should not be liable for charges after November 7, 2008, when they indicated they would cease using ICG’s services. Consequently, $88.41 was deducted from the total due, leaving $211.59 owed for hosting services. The court also awarded TN Sports $1,157.50 for breach of contract related to outside consultations for website defects.
The trial court's judgment calculations were praised for their accuracy, distinguishing between website hosting and development services. It was affirmed that ICG was entitled to $211.59 for unpaid hosting invoices. However, the court found that ICG should instead be compensated based on the actual benefit received by TN Sports from the development work on the 2008 Website, rather than the initially agreed rate.
Significant issues arose with the website delivered to TN Sports in July 2008, with most problems unresolved by ICG. Despite these issues, the website had some functionality, indicating it held value. Expert testimonies focused on the programming languages used, but did not aid in assessing the website's value, as the goal was delivering a website that met TN Sports' needs, not merely conforming to industry standards. There was conflicting evidence regarding the completion costs; one expert suggested only $3,000 to $4,000 was needed, while another deemed the website inadequate for TN Sports' core functions and stated that rectifying the defects would be costlier than creating a new website. The trial court did not resolve these discrepancies, leading to a need for further evidence to determine TN Sports' benefit. An email exchange revealed differing opinions on the value of the work, with one party suggesting $15,000 and the other $20,000. Ultimately, since ICG failed to prove a value exceeding $15,000 and given Mr. Steen’s acknowledgment of that amount, the evidence supports a finding that TN Sports received a $15,000 benefit from ICG's services.
TN Sports is entitled to deductions totaling $6,157.50 from the $15,000 value assigned to the 2008 Website. This includes $1,157.50 paid to outside consultants TN Geeks and Design615 for addressing deficiencies in the website, which the trial court credited against the award to ICG. Additionally, TN Sports made three payments to ICG totaling $5,000 in response to invoices for work on the 2008 Website, which also warrants a credit. After applying these deductions, ICG is entitled to $8,842.50 for the website development. Furthermore, ICG is entitled to $4,898.49 for unpaid maintenance and hosting services from 2007, which TN Sports did not dispute. ICG is also owed $211.59 for hosting services in 2008. Therefore, the total monetary judgment awarded to ICG amounts to $13,952.88.
Regarding personal liability, Mr. Steen is held personally liable for TN Sports' obligations due to his failure to disclose the identity of his principal during business dealings with ICG. Established legal principles dictate that an agent must disclose both the existence of an agency and the identity of the principal to avoid personal liability. Despite Mr. Steen's intention to bind TN Sports, he conducted business under the name “Nashville Sports Leagues,” which was administratively dissolved in 2004 and never reinstated. This misrepresentation led to the conclusion that Mr. Steen is personally liable, as all dealings and invoices identified him with Nashville Sports Leagues, not TN Sports.
Mr. Massari testified that ICG frequently accepts payments from parties other than the actual client, which led to the conclusion that the voucher did not adequately disclose Mr. Steen’s principal. The court rejected Mr. Steen’s claim that “Nashville Sports Leagues” was merely a marketing name for TN Sports, LLC, citing Tennessee law regarding assumed names for LLCs. Under Tenn. Code Ann. 48-249-106(d), a domestic LLC must file an application for any assumed name it intends to use, which TN Sports, LLC, failed to do as evidenced by its Entity Detail from the Tennessee Department of State showing no assumed names. Consequently, the court upheld the trial court's ruling that Mr. Steen did not disclose his principal and is personally liable for the judgment. The trial court's judgment is affirmed in part, modified in part, and remanded for consistent judgment entry, with appeal costs assigned to TN Sports, LLC, and Philip Steen jointly and severally.
