Opinion
No. 99 C 1456.
March 9, 2000.
MEMORANDUM OPINION AND ORDER
Suncraft Technologies, Inc. ("Suncraft") sues Zirkon Druckmaschinen GMBH ("Zirkon") for breach of contract (Count I) and promissory estoppel (Count II) under Illinois law. Zirkon moves for summary judgment pursuant to Fed.R.Civ.P. 56.
BACKGROUND
The court views the background facts in a light most favorable to Suncraft as the non-movant; all disputed facts must be resolved in its favor for purposes of this motion. Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir. 1992). Zirkon is a German corporation that manufactures and sells printing presses. Suncraft is a commercial printing company based in Illinois. In the Spring of 1998, Zirkon's United States agent, Hantish International, Inc. ("Hantish") asked Suncraft if it was interested in purchasing a Zirkon press. During initial discussions between Suncraft and Hantish, Suncraft told Hantish it wanted Zirkon to finance any eventual purchase of a press. DeSanto Dep. at 22-23. According to Suncraft, Hantish responded that Zirkon would "take care" of financing. Id. at 24. But according to Roger Hollando, Hantish's president, Hantish told Suncraft that Zirkon did not provide financing, but Zirkon's German banks might provide financing if they received proper guarantees. Hollando Dep. at 45. Talks continued, and in May 1998, Zirkon requested Suncraft's financial statements; Suncraft provided the statements. Zirkon did not indicate the financial statements were problematic or unacceptable.
On June 8, 1998, Suncraft met with Zirkon and Hantish. The parties discussed Suncraft's proposed purchase of a Zirkon 9620 press ("the 9620"). Suncraft asked Zirkon for financing. Zirkon told Suncraft it could provide financing for five years, and perhaps six or seven years, at eight percent annual interest with a six-month deferral period; Suncraft responded that this was acceptable. Cochill Dep. at 23, 30-32. Zirkon told Suncraft it had a close working relationship with its bank in Germany, Deutsche Bank, and that they would take care of financing. DeSanto Dep. at 44-48. However, it was unclear to Suncraft whether Zirkon itself would provide financing or whether Deutsche Bank would do so. Id. Suncraft believed a deal for Suncraft's purchase of the 9620 and financing terms had been agreed to, although the agreement was to be reduced to written documents to be signed by the parties. Cochill Dep. at 35-36. However, matters concerning the press technical specifications had not been agreed upon and remained to be worked out.
As it turned out, Suncraft needed a press sooner than Zirkon could provide the 9620. Suncraft decided to purchase or lease a smaller press for use during the interim period. By a letter of June 29, 1998, Hantish proposed that Suncraft purchase a smaller Zirkon press, the Zirkon 6610 ("the 6610"), in addition to the 9620. Not wishing to purchase two presses, Suncraft responded in a letter dated July 7, 1998, that it would purchase the 9620 and lease the 6610 in a combined transaction. The letter included various terms of the proposed lease. By a letter dated July 9, 1998, Zirkon initially responded that it would be difficult to accept Suncraft's proposal and that a counter-proposal was forthcoming. However, Suncraft spoke with Zirkon that same day to clarify the proposal and believed Zirkon then accepted the proposal.
On August 6, 1998, Suncraft, Zirkon, and Hantish met to discuss the Suncraft's combined purchase of the 9620 and lease of the 6610. Zirkon gave Suncraft two draft agreements, one for the purchase of the 9620 for $4,547,750 and the other for the purchase of the 6610 for $2,391,085. The draft agreements did not contain financing terms or state that Zirkon or its bank would provide financing. The drafts stated that they were not binding until signed by Zirkon. Suncraft believed Zirkon's provision of the draft agreements served to confirm that an agreement had been reached, and Zirkon asked Suncraft to have its attorneys conform the drafts to the terms of the deal agreed upon in the meeting. The parties did not discuss financing terms, and by the end of the meeting, the parties had still not reached agreement on technical specifications. Finally, Zirkon asked Suncraft for a reference letter from Suncraft's bank, but did not state the reason the letter was requested.
Suncraft provided Zirkon with a reference letter on August 25, 1998. After receiving the letter, Zirkon recognized the wording of the letter would not be well-received by Zirkon's bank and that the bank might require a guarantee from Suncraft's bank before providing financing. Zirkon did not inform Suncraft of this possibility at the time.
On September 8, 1998, Suncraft returned two draft agreements to Zirkon. One was for the purchase of the 9620, just as Zirkon's draft concerning the 9620 was a purchase agreement. However, Suncraft submitted a draft lease agreement for the 6610, whereas Zirkon's draft for the 6610 was a purchase agreement. Suncraft's drafts contained a purchase price for the 9620 and a lease price for the 6610 different from those stated in Zirkon's drafts. Suncraft's draft for the 9620 did not contain terms concerning the financing period, repayments, or any payment deferral period. The draft provided the purchase price would be evidenced by a promissory note, but did not include a draft note. Section K of the 9620 draft stated that "[t]he date of this contract shall be and is the date of its acceptance by Seller and it shall not be valid unless executed by a duly authorized officer of Seller." Section O stated "[t]he whole contract between the parties is contained herein." The draft agreement did not include certain technical specifications, and the parties did not discuss either draft after they were delivered to Zirkon. Suncraft did not expect to receive presses, or to receive financing from Zirkon until a contract was signed. Suncraft did not believe a written contract was required before it received the presses or financing.
Before the August meeting, Zirkon learned that Deutsche Bank's branch in St. Louis would not provide financing. However, Zirkon was waiting to hear whether Deutsche Bank's Leipzig, Germany branch would provide financing. After the August meeting, Zirkon was informed that the Leipzig branch would not provide financing without a guarantee. On September 21, 1998, Zirkon notified Suncraft that the reference letter from Suncraft's bank was inadequate and that financing could not be provided by Zirkon's bank unless Suncraft's bank guaranteed Suncraft's payment. This was the first time the necessity of a guarantee was mentioned. Zirkon has not provided the presses or financing.
DISCUSSION
A movant is entitled to summary judgment under Rule 56 when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Unterreiner v. Volkswagen of America, Inc., 8 F.3d 1206, 1209 (7th Cir. 1993). Once a moving party has met its burden, the non-moving party must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir. 1990). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Stewart v. McGinnis, 5 F.3d 1031, 1033 (7th Cir. 1993)
I. BREACH OF CONTRACT
According to Suncraft, the parties had a contract in which Zirkon agreed to sell and lease presses to Suncraft and to provide financing under the terms discussed by the parties. Suncraft maintains the contract was not oral, but was an agreement in principle contained in its September 1998 draft agreements sent to Zirkon. Suncraft's Resp. to Zirkon's Interrog. ¶ 9. Suncraft asserts Zirkon breached this contract by failing to provide the agreed upon financing and instead insisting upon a guarantee from Suncraft before providing financing. Zirkon responds that no contract existed and the parties did not intend to be bound until execution of a written agreement covering the sale and lease of the presses. Zirkon asserts that execution of a written agreement was a condition precedent to any duties it had to sell or lease presses, or provide financing. Suncraft responds the parties sought execution of formal written documents only to memorialize the previously agreed upon contract.
Under Illinois law, "[w]here the reduction of an agreement to writing and its formal execution is intended by the parties as a condition precedent to its completion, there can be no contract until then, even if the actual terms have been agreed upon." In re Glassman, 628 N.E.2d 666, 670 (Ill.App. 1993); see also Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 261 (2nd Cir. 1984) ("if the parties intend not be bound until they have executed a formal document embodying their agreement, they will not be bound until then") (citations omitted). Suncraft's breach of contract claim therefore hinges on whether the parties intended to be bound only upon execution of written documents covering the sale, lease, and financing of Zirkon presses, or whether the parties intended written documents to serve simply as a memorialization of a previously reached agreement.
Suncraft contends the issue of its intent is not properly resolved on summary judgment. However, the question of intent to be bound is an objective, rather than subjective, inquiry that is assessed by looking at the actions and words of the parties.Robbins v. Lynch, 836 F.2d 330, 332 (7th Cir. 1988); Skycom Corp. v. Telstar Corp., 813 F.2d 810, 815 (7th Cir. 1987).
Courts look to various factors in determining whether the execution of a written contract was intended as a condition precedent, such as (1) whether the agreement is the type of business arrangement that is reduced to writing; (2) whether the amount of money involved was substantial; (3) whether significant provisions were not previously discussed or agreed upon; and (4) whether the parties' negotiations show that a writing was anticipated. David Copperfield's Disappearing, Inc. v. Haddon Advertising Agency, Inc., 897 F.2d 288, 292 (7th Cir. 1990) After reviewing the record, the court finds that Suncraft fails to offer evidence supporting a reasonable inference that the parties intended the execution of written documents to act only as a memorialization of a previously agreed upon contract. To the contrary, the evidence suggests execution of a written agreement was intended to be a condition precedent to the enforceability of any agreement.
First, the evidence does not establish that a contract exists. The parties did not reach agreement on certain material terms of the purported contract, particularly the financing terms. This being the case, there was no agreement that execution of written documents could serve to memorialize. Suncraft contends the parties did reach agreement on financing because in the June 1998 meeting, Zirkon told Suncraft it could provide financing for five years, and perhaps six or seven years, at eight percent interest with a six-month deferral period. However, this statement by Zirkon during preliminary negotiations is not a definite and certain promise. The statement did not contain a specified duration of financing, as it contemplated between five and seven years for financing. See Insurance Co. of Illinois v. Stringfield, 685 N.E.2d 980, 984 (Ill.App. 1997) ("A contract is binding and enforceable only if its material terms are definite and certain."). Moreover, the parties' drafts do not reflect agreement on financing. Zirkon's drafts did not mention financing terms, or that Zirkon or its bank would provide financing. And while Suncraft's response drafts, drafts supposedly "conformed" to the parties' agreement, stated an interest rate, they did not state other material financing terms, such as duration. Suncraft admits that its September 8 drafts contained all the terms to which the parties agreed. Suncraft Resp. to Zirkon's Interrog. Thus, the lack of clear and definite financing terms in Suncraft's own drafts suggests lack of agreement on all material financing terms. Furthermore, technical details remained to be agreed upon, such as the choice of auxiliary equipment, drive shaft location and rotation, press gearings, and horsepower. In these circumstances, the drafts were not exchanged simply to memorialize an earlier agreement. Rather, the drafts were Suncraft's proposed agreement.
Second, Suncraft's drafts stated that the agreements are not valid until executed by Zirkon. Suncraft argues this language should not be given weight because this provision was never discussed during negotiations, but was inserted as boilerplate taken from Zirkon's earlier drafts. Even if this language was boilerplate taken from Zirkon's drafts, Suncraft's attorneys included the language in its own drafts. This evinces an approval and acceptance of the language by Suncraft. See Reprosystem, 727 F.2d at 262 (finding parties did not intend to be bound prior to execution of formal documents where, during the exchange of drafts, "neither party took exception to. provisions that conditioned [the contract's] binding effect on formal execution and delivery")
Suncraft contends Zirkon did not treat the language as essential because Zirkon normally refers to draft agreements of the type given to Suncraft as "boilerplate." However, this does not indicate Zirkon believed the written contract to be a mere memorialization. While Zirkon's drafts may have been called "boilerplate," their treatment by the parties suggests a substantive purpose: Suncraft was to review Zirkon's drafts, conform them to the parties' agreement, and resubmit them to Zirkon for Zirkon's approval.
Suncraft points to the testimony of Roger Hollando, Hantish's president, that Zirkon usually does not draft written agreements until the terms of proposals are accepted. It argues that because Zirkon does not provide draft agreements until terms of an agreement are accepted, the fact that Zirkon provided draft agreements indicates Zirkon believed an agreement had been reached on the essential terms. However, simply because the parties may have reached agreement on some terms does not necessarily mean the parties agreed on all terms. As already noted, the draft agreements did not contain key financing terms, thus indicating agreement had not been reached on financing. Moreover, even if the parties had reached an agreement in principle on key terms, Zirkon's drafts stated they were not binding until signed by Zirkon. "Agreements in principle" that refer to subsequent formal agreements are not binding. Skycom Corp. v. Telstar Corp., 813 F.2d 810, 815 (7th Cir. 1987).
Third, Zirkon offers evidence indicating that it is the custom in the printing press industry for purchase and financing agreements to be contained in written contracts signed by the parties, and that preliminary oral agreements are not final and enforceable until written contracts containing all terms of the transactions are executed. Holliday Aff. ¶ 3. Suncraft attacks this evidence on two fronts. First, it offers the declaration of its president, Ronald DeSanto, that based on his experience in the industry, there is no custom or practice concerning whether parties intend to be bound only upon execution of written documents. However, Suncraft did not identify or qualify DeSanto as an expert witness. Therefore, his declaration may not be used to establish industry custom; it may only be used to establish his own experience. Second, Suncraft urges that reference to industry custom is improper when determining parties' intent. It contends the relevant inquiry is what the parties intended in this particular transaction, and not general industry practice. Reference to industry custom is but one factor considered in this inquiry. The court does not consider industry custom as dispositive, but as one instructive factor in adducing the parties' intent.
Fourth, Suncraft agreed the purported "agreement in principle" would be documented in a writing, and did not expect Zirkon to provide the presses or financing until a contract was signed. Suncraft itself asserts companies routinely wait for the completion of written documents before proceeding in order to ensure the documents accurately reflect the parties' agreement. Suncraft further argues the boilerplate language was included only to protect Zirkon by insuring the written documents accurately memorialized the terms of the parties' prior agreement. These arguments by Suncraft are curious because they undermine Suncraft's position. Protection to Zirkon arises only if Zirkon was not bound to perform until execution of the written agreement. Allowing Zirkon to review and then execute Suncraft's draft would allow Zirkon to ensure it was entering into obligations in accord with the agreement in principle. There would be little, if any, protection to Zirkon resulting from submitting drafts for Zirkon's signature if Suncraft could claim Zirkon's contractual obligations had been established elsewhere. In that case, if Suncraft's draft did not conform to the terms of the agreement in principle, Zirkon would simply request an accurate draft, but it would still be bound to perform the unwritten agreement in principle.
Finally, Suncraft relies upon Computer Systems of America, Inc. v. IBM Corp., 795 F.2d 1086 (1st Cir. 1986) in support of its claim that the parties did not intend the execution of a written contract to be a condition precedent to an enforceable contract.Computer Systems dealt with a lease by the defendant for a computer system owned by the plaintiff. Computer Systems is inapposite for many reasons. First, the disputed clause in that case stated, "[t]his lease is dependent upon satisfactory contractual arrangements." Id. at 1087 n. 1. The court found this language ambiguous and that it could be consistent with the view that the parties had reached a binding agreement on all essential terms of the lease, and that agreement would simply be followed by the later execution of a formal lease contract. Id. at 1089. Here, the clauses are substantially more definitive as to the parties' intent: they state the contract "shall not be valid unless executed." Moreover, other factors in Computer Systems indicated that a formal written agreement was not a condition precedent to the parties being bound. The defendant sent the plaintiff instructions so that the computer could be modified to meet defendant's requirements. In addition, testimony indicated both parties intended to be bound prior to the execution of a written document, that pursuant to industry custom, a formal lease agreement would not be executed until after delivery and installation of the computer, and that the computer was in fact shipped to defendant. In contrast, Suncraft offers no evidence indicating Zirkon modified any presses for Suncraft's special needs, nor did Zirkon ever deliver any presses. As already discussed, the custom in the printing press industry is to wait until execution of written agreements before delivering presses. Accordingly, summary judgment must be granted against Suncraft on its breach of contract claim (Count I).
II. PROMISSORY ESTOPPEL
In Count II, Suncraft seeks relief under the doctrine of promissory estoppel. To prevail on this claim, Suncraft must show it reasonably relied to its detriment on an unambiguous promise by Zirkon and that its reliance was foreseeable. Kastel v. Winnetka Board of Education, 946 F. Supp. 1329, 1342 (N.D.Ill. 1996) (citing M.T. Bonk Co. v. Milton Bradley Co., 945 F.2d 1404, 1408 (7th Cir. 1991)). Suncraft's promissory estoppel claim is based on Zirkon's purported promise to provide Suncraft with financing. Suncraft contends Zirkon knew Suncraft would not be able to purchase and lease the presses without financing, and that Suncraft relied on Zirkon's promise of financing to its detriment because it delayed purchasing another press, and had to subcontract work to other printers.
Suncraft fails to offer evidence to show it reasonably relied on Zirkon's purported promise. In determining whether reliance is justified,
all of the circumstances surrounding the transactions, including the parties' relative knowledge of the facts available, opportunity to investigate the facts and prior business experience, will be taken into consideration. Only where the parties do not have equal knowledge, or access thereto, or where there are other peculiar circumstances inducing the injured party to rely solely on the representation of the other will a person be found to have justifiably relied upon the other's representations.Runnemede Owners, Inc. v. Crest Mortgage Corp., 861 F.2d 1053, 1058 (7th Cir. 1988). Suncraft asserts its reliance was justified because Zirkon lead Suncraft to believe it had a close relationship with its German bank and would be able to "take care" of financing and provide financing itself if necessary, and because Zirkon never told Suncraft its financial statements presented an impediment. From this, Suncraft concludes it justifiably believed its financial health was satisfactory to Zirkon and that the transaction would proceed.
The court disagrees. First, the absence of complete financing terms in the draft agreements transferred between the parties — particularly those submitted by Suncraft — belies Suncraft's claim that Zirkon promised financing. Rather, the only reasonable inference that may be drawn from the absence of complete and definite financing terms is that there was no free-standing promise by Zirkon to finance. If there was a promise, one would expect to find the terms of that promise in Suncraft's drafts. Moreover, even if Zirkon promised to provide financing under clear and definite terms, Zirkon's obligations were contingent upon execution of a written contract. Thus, Suncraft's reliance was not reasonable. See Glass v. Kemper Corp., 133 F.3d 999, 1004 (7th Cir. 1998) (where promise contingent on negotiation of final contract containing promise, plaintiff's reliance on promise was unreasonable until contract was agreed upon); Gruen Industries, Inc. v. Biller, 608 F.2d 274, 282 (7th Cir. 1979) ("It is difficult to find the degree of injustice necessary for recovery in estoppel when the promises incorporate so many contingencies and complexities and as a matter of sound business practice are to be formalized before the parties carry them out."). In addition, Zirkon's request of a reference letter from Suncraft's bank should have put Suncraft on notice that matters of financing were not completed and that its financial health was still of concern. Suncraft responds that after Zirkon reviewed the letter, it realized the letter was inadequate but did not inform Suncraft. However, while Zirkon had concerns about the letter, it did not know the letter would be inadequate until receiving notification from its bank that a guarantee would be required. Once it received this notice, it notified Suncraft. Accordingly, summary judgment must be granted against Suncraft on Count II.
III. STATUTE OF FRAUDS
Finally, the court finds that Suncraft's claims are barred by the statute of frauds. Under § 201(1) of Illinois' statute of frauds, a written agreement for the sale of goods in excesses of $500 is not enforceable unless the party against whom enforcement is sought has signed some writing establishing that a contract for sale has been made. 810 ILCS 5/2-201(1). Suncraft maintains its September 1998 draft agreements contain the terms of the parties' agreement. However, Zirkon did not execute Suncraft's drafts, and Suncraft does not point to any writing signed by Zirkon containing even a single material term of the purported agreement or evincing existence of a contract for sale. Moreover, Suncraft's drafts do not even contain all material terms of the purported contract, particularly the duration of financing. Demos v. National Bank of Greece, 567 N.E.2d 1083, 1087 (Ill.App. 1991) (duration of loan and repayment terms are essential terms)
Suncraft argues Zirkon cannot invoke the statute of frauds because Zirkon admitted to the existence of an oral contract. Under 810 ILCS 5/2-201(3)(b), a contract not meeting the formal requirements of § 201(1) is nonetheless enforceable if the party against whom enforcement is sought admits in a pleading, testimony, or in court that a contract was made. Suncraft contends that because Zirkon does not prepare draft contracts until the terms of a proposal are accepted, and because Zirkon prepared draft contracts in August 1998, Zirkon admitted that the parties had an agreement on all terms of the transaction. However, the fact that Zirkon prepared draft contracts is simply too tenuous to support an inference that Zirkon admitted the existence of an oral contract. Hollando's testimony that Zirkon generally prepares draft contracts once the terms of a proposal are accepted does not shed light on the parties' agreement. As shown in the exchange of drafts between the parties, all material terms had not been agreed upon, much less included in the drafts.
In addition, Suncraft's promissory estoppel claim is barred by the statute of frauds. McInerney v. Charter Golf, Inc., 680 N.E.2d 1347, 1352 (Ill. 1997); Peoria Assocs. Ltd. Partnership v. Best Buy Co., Inc., 995 F. Supp. 823 (N.D.Ill. 1997). Suncraft asserts Zirkon's promise to finance does not fall within the statute of frauds because it was capable of performance within a year. 740 ILCS 80/1-1 provides in part that no action shall be brought to enforce an oral promise or agreement that is not to be performed within one year. To fall within this provision, the promise must be capable of performance within one year. Lamaster v. Chicago N.E. Ill. Dist. Council of Carpenters Apprentice Trainee Program, 766 F. Supp. 1497, 1507 (N.D.Ill. 1991) However, Zirkon's purported promise to provide financing was not capable of performance within one year. The performance time contemplated by the negotiations suggests the contrary. Suncraft claims Zirkon agreed to provide financing for five or six years. This is clearly in excess of one year, and Suncraft points to no evidence that the purported agreement contained a termination provision permitting Suncraft to pay off the financing within one year.
Finally, Suncraft contends Zirkon may not invoke the statute of frauds defense as to either of its claims because Zirkon is equitably estopped from asserting the statute. Equitable estoppel defeats the statute of frauds where the defendant misrepresents or conceals a material fact and the plaintiff relies upon the misrepresentation to his detriment. McInerney v. Charter Golf, Inc., 680 N.E.2d 1347, 1352 (Ill. 1997). The party asserting equitable estoppel must prove a misrepresentation or concealment of material fact under these circumstances. Cohn v. Checker Motors Corp., 599 N.E.2d 1112, 1117 (Ill.App. 1992) However, Suncraft fails to raise an issue of fact as to whether its reliance upon Zirkon's purported promise to finance was reasonable.
The complaint does not contain a claim of fraud. However, in its response to Zirkon's motion for summary judgment, Suncraft states the evidence supports a claim of fraud. Suncraft may not now add a fraud count to this action. Suncraft has not moved to amend the complaint, and Suncraft waited for a month after the close of discovery before asserting Zirkon's actions constitute fraud. In addition, Suncraft does not allege Zirkon's fraud with particularity as required by Fed.R.Civ.P. 9(b)