Articles Posted in Breach of Contract

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Business owners and consumers alike know that contracts are an everyday part of life. Equally common though are modifications or amendments to those contracts. Some modifications are memorialized in writing. Many more, however, are made orally and even worse some are implied through a party’s conduct. As we have discussed previously, Illinois law permits the parties to a contract to orally modify their contracts, even if the contract provides that all amendments must be in writing. However, certain contracts are subject to specific statutory provisions that prohibit oral modifications.

One such statutory prohibition against oral modifications is Section 2-209 of the Illinois Commercial Code, 810 ILCS 5/2-209(2). Section 2-209 of the Illinois UCC governs modification, rescission, and waiver of contracts for the sale of goods. Specifically, Section 2-209(2) bars oral modifications but only when the prior written contract includes a provision that “excludes modification or rescission except by a signed writing.” Business owners must be aware though that Section 2-209 does not apply to all contracts. It is limited to transactions in goods and may be extended only to contracts that are predominantly for the sale of goods. Business owners must be aware of the requirements for Section 2-209 to apply.  Continue reading ›

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After two companies got into a dispute about the timeframe for payment of invoices, the 7th Circuit Court of Appeals found that the district court had erred in not considering the parties’ course of dealings to determine what a fair time to pay would have been.

In 1999, Valley Drive Systems, Inc. began manufacturing parts for Arctic Cat, Inc. In 2002, Driveline assumed control of Valley Drive Systems, Inc.’s assets. In June of that year, Driveline and Arctic Cat entered into a contract where Driveline would provide specifically-manufactured hubs, axels/half-shafts, outer and inner tie rods, shift shafts, and steering stops. The contract made Driveline a “just-in-time supplier” for Arctic Cat. Driveline provided its goods and filled orders daily with regular deliveries to Arctic Cat. Continue reading ›

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After two companies got into dispute over fallout from jointly hosted party during Indianapolis 500, the appellate court affirmed the district court’s view that the plaintiff had no non-speculative evidence of damages, and that the plaintiff had committed a breach of contract by not promoting the event across the social media channels that it agreed to use.

The Indianapolis Motor Speedway, LLC sponsors the annual Indianapolis 500 race and associated race-weekend events, which include musical acts and other festivities. In 2015, Karma International became a licensee of Maxim, a men’s magazine. Karma has hosted Maxim-branded entertainment at large sporting events, including a party prior to the 2016 Super Bowl in San Francisco.

In early 2016 Karma began negotiations with the Speedway to host a Maxim-branded event at that year’s 100th-running of the race. The parties eventually agreed on terms in a March 2016 agreement. The agreement required each party to cross-promote the event across their social media channels. The Speedway complied with its obligations under the agreement, but Karma never ran the banner ad it promised to show on Maxim.com. It also did not use Maxim’s social-media channels to promote race-weekend events. Continue reading ›

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A condo association held an insurance policy on its condo buildings. In 2014, a hail and wind storm damaged the siding on several of the buildings. The storm, however, damaged only the south and west-facing sides of the buildings. The association’s insurer initially paid the association several million to repair the damage, which covered the replacement cost of siding for the south and west sides of the buildings. The association found, however, that matching siding was no longer produced. The insurer refused to pay the cost of replacing the siding on all sides of the building, so the association sued. The district court ruled in favor of the association, and the insurer appealed. The appellate panel affirmed. The panel found that requiring the insurer to replace all sides of the building was a sensible construction of the contract, given that replacing the siding such that two sides of the building did not match the other two would reduce the value of the properties and keep the insured from being made whole.

Windridge of Naperville Condominium Association held an insurance policy via Philadelphia Indemnity Insurance Company. In May 2014, a hail and wind storm-damaged buildings owned by Windridge. These buildings were insured by Philadelphia Indemnity. The storm directly damaged the siding only on the buildings’ south and west sides. Philadelphia Indemnity paid Windridge $2.1 million for the damage, which covered the replacement of the siding on the south and west sides.

Windridge, however, sought replacement of the siding on all four sides of the building, as matching siding for the south and west sides was no longer available. Philadelphia Indemnity refused to pay those costs, arguing that it was only responsible for replacing the siding that was directly damaged by the storm. The district court granted summary judgment for Windridge, and Philadelphia Indemnity appealed. Continue reading ›

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A couple purchased an RV from a retailer in 2014. The RV came with a warranty from the manufacturer that limited the warranties to one year from the date of purchase. The warranty required that the purchasers notify the manufacturer or an authorized dealer within five days of discovering any defect. The purchasers experienced continual problems with the RV over the time that they owned it. The RV was repaired multiple times, but the service technicians were never able to fully resolve the defects. The purchasers asked the manufacturer to repurchase the RV from them. When the manufacturer refused, the purchasers sued, claiming the manufacturer breached its warranties. The district court granted summary judgment to the manufacturer. The appellate panel affirmed, finding that the purchasers had not given the manufacturer enough chances under Indiana law to cure the defects with the RV.

Vanessa and Randy Mathews purchased a Holiday Rambler Presidential RV in May 2014 from Mellott Brothers Trailer Sales, Inc. The RV came with a warranty from the manufacturer, REV Recreation Group. The warranty limited both express and implied warranties to one year from the purchase date. To take advantage of the warranty, the Mathews had to notify REV or an authorized dealer within five days of discovering a defect.

The Mathews alleged that they encountered problems with the RV almost as soon as they drove it off the lot. They called the dealership to report that there were issues with the interior lights, the refrigerator, and the leveling system. A month later, the Mathews encountered further difficulty: the converter was blowing fuses, the leveling jacks worked only intermittently, the curbside slide cable broke, and there were problems with the TV and the DVD player. After calling the dealer again, the Mathews were given the number for REV so that they could locate an authorized repair center. Continue reading ›

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A company that purchases tax liens in order to obtain tax deeds to properties sued Law Bulletin for breach of contract over a misprinted hearing date in a Take Notice, which the company alleged cost it $1 million when the circuit court denied the company’s tax deed application due to the misprint. Following a trial, the jury entered a verdict in favor of Law Bulletin and against the company finding that the company had not fully performed its obligations under the parties’ contract. The First District Appellate Court affirmed finding that the trial court had not committed an error in denying the company’s pre-trial motion for summary judgment or mid-trial motion for a directed verdict.

Every year, Wheeler Financial purchased hundreds of tax liens from the Cook County Treasurer’s Office at the annual auction to sell tax liens on properties with delinquent tax bills. Under the Illinois Property Tax Code, if the property owner fails to satisfy a tax lien by paying the amounts due within the applicable redemption period, the tax lien purchaser may obtain fee simple title to the property. To obtain title to the property, the tax lien purchaser must apply to the circuit court for a tax deed and publish a Take Notice in a newspaper giving the property owner certain information including the hearing date on which the petition for tax deed will be heard by the court.

Law Bulletin publishes these Take Notices in its newspaper, the Chicago Daily Law Bulletin. Wheeler Financial used the Law Bulletin exclusively to publish its Take Notices for 15 years, publishing between 1000 to 1600 Take Notices annually with the Law Bulletin during that time. In one instance, Law Bulletin misprinted the hearing date for the tax deed for a particular property. When the circuit court discovered that the wrong hearing date had been published in the Take Notice, it denied Wheeler Financial’s petition for a tax deed. Continue reading ›

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A reseller of athletic apparel entered into a contract with a large retailer to resell aged and customer-returned athletic wear products. The agreement contained a right of refusal and other provisions, including an automatic extension provision. The agreement was extended several times over a period of 14 years. The parties continued to deal with each other after the final expiration, but eventually, the retailer pulled out of the arrangement. The reseller sued, arguing that the retailer’s behavior in continuing to sell it product served to extend the term of the agreement. The district court disagreed and dismissed the case. The appellate panel affirmed, finding that the contract was not ambiguous and that the reseller’s interpretation of the agreement was not reasonable.

Finish Line Sports is a large retailer of athletic shoes, apparel, and accessories. Division Six specializes in the resale of both aged and customer-returned athletic wear products. In 2001, Finish Line and Division Six entered an agreement by which Division Six received the exclusive right to purchase aged and customer-returned merchandise from Finish Line. The agreement provided for an 18-month term that could be extended by written agreement of the parties prior to the expiration of the term or any extension thereof. The agreement also gave Division Six a right of first refusal if Finish Line received a bona fide arms-length offer from a third party to purchase its surplus merchandise within six months prior to the term’s expiration. If Finish Line did not receive such an offer, the agreement would automatically renew for an additional eighteen-month term. Continue reading ›

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An insurance company defended a construction firm against a claim by a condo association for defective design and construction of a building, as it thought the claim arose during the company’s policy period. The insurance company was not estopped from later denying payment for the claim when it was discovered that the claim had in fact arisen 10 years before the policy went into effect.

In 2002, the Blue Moon Lofts Condominium Association filed a complaint against The Structural Shop, Ltd in Illinois state court seeking damages arising out of TSS’s allegedly defective design and construction of a building. Blue Moon served notice of action to TSS’s registered agent, Thomas Donohoe on November 2002. TSS never responded to the notice or appeared in the state court action to defend itself, leading in May 2003 to the state court declaring the company in default. In 2009, the state court entered a default judgment and set the damages amount at $1,356,435 plus costs.

Many years later, Essex Insurance Company sold TSS a policy for claims first made against TSS from May 2012 to May 2013. Essex knew nothing about the prior litigation. For a time, both TSS and Essex believed that Blue Moon had failed to properly serve TSS in 2002, and thus had first brought notice of the claim to TSS in 2012 when it attempted to collect the default judgment. Laboring under this mistaken belief, TSS petitioned the state court to vacate the default judgment. The court granted the motion and vacated the judgment. TSS then informed Essex of the developments and Blue Moon’s claim. Essex, unaware that Blue Moon had properly served TSS in 2002, considered the claim to have arisen during the policy period and thus acted on its duty to defend TSS. Continue reading ›

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In most cases, when an insurance company has a duty to defend an insured, the insurance company gets to pick the attorney that defends the business or individual being sued. Insurance companies often use what is known as “panel counsel,” an attorney or law firm that an insurance company regularly uses to represent its insureds.  Many times, the interests of the insurance company and the insured are aligned: resolve the case for the least amount of money possible. But sometimes a conflict of interest exists that causes their interests to diverge. In such instances, the insured is generally entitled to select its own attorney and the insurance company still has to pay the reasonable cost of defense. What circumstances constitute a conflict of interest though? In Xtreme Protection Services, LLC v. Steadfast Ins. Co., the First District found that the possibility of a large award of punitive damages created a conflict of interest that entitled the insured to select its own independent attorneys.

In October 2016, Xtreme Protection Services, LLC (“Xtreme”) was named as a defendant in a lawsuit filed by David Isreal which alleged claims of assault and intentional infliction of emotional distress among other causes of action. The plaintiff alleged that Xtreme, acting though one of its employees, placed listening devices in Mr. Isreal’s office, attached GPS devices to his vehicle, and sent him numerous harassing text messages. The plaintiff sought compensatory damages of $120,000 and more than $4 million in punitive damages.

Xtreme, a security services company, had an “armed security services” liability policy issued by Steadfast Insurance Company (“Steadfast”). The policy included an indemnity for bodily injury and property damage but expressly excluded coverage for intentional conduct and punitive damages. After being sued, Xtreme retained an attorney who tendered the complaint to Steadfast for coverage. Steadfast advised that it would retain its own counsel to defend Xtreme. Steadfast then retained counsel for Xtreme under a reservation of rights based on the punitive damages exclusion and on the basis that the underlying complaint alleged intentional conduct. Xtreme notified Steadfast that it did not want to be represented by Steadfast’s selected counsel due to a conflict of interest between Steadfast and Xtreme.

Xtreme later filed suit against Steadfast seeking a declaration that Xtreme was entitled to select its own counsel because of the conflict of interest caused by the possibility of a large punitive damages award. Steadfast sought its own declaration that it no longer had a duty to defend Xtreme because Xtreme had breached its duty to cooperate with Steadfast. After cross-motions for judgment on the pleadings, the trial judge found that the conflict of interest caused by the potential of a large punitive damages award in the underlying lawsuit entitled Xtreme to select its own counsel. Continue reading ›

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Contracts are ubiquitous. Every company is a party to numerous different contracts. Leases, purchase agreements, vendor agreements, supply contracts, and employment agreements are just a few of the contracts that a company typically enters in the normal course of business. The parties to a contract expect the other to live up to its obligations as set forth in the written contract. One important rule that many companies and business owners are not aware of, however, is that oral modifications to the terms of a contract can trump the written obligations in a contract, even if the contract expressly prohibits oral modifications.

The recent case of Miller UK Limited v. Caterpillar Inc. demonstrates the significant consequences of this rule. In Miller, the parties entered a written agreement in which Miller agreed that it would “not disclose to Caterpillar any confidential or proprietary information unless our two companies otherwise first agree in writing.” Subsequently, at a meeting between the companies, the parties orally agreed to keep any information shared at the meeting confidential. At that same meeting, Miller shared confidential and proprietary information with Caterpillar concerning technical specifications for a coupling system Miller had developed which allowed earthmover and excavator vehicles to attach shovels, buckets, and other attachments to their mechanical arms quickly without requiring the vehicle operator to leave its cab. Caterpillar later developed its own coupling system that was similar to Miller’s system.

Miller sued Caterpillar for breach of contract and violation of the Illinois Trade Secret Act (“ITSA”). A jury ultimately awarded Miller $16 million on its breach of contract claim and $74.6 million on its ITSA claim. After trial, Caterpillar sought to have the verdict vacated. Caterpillar argued that none of the information Miller shared at the meeting could be considered confidential because the parties’ written contract prohibited sharing confidential or proprietary information without first entering a written nondisclosure agreement. Consequently, Caterpillar argued, because the information was shared without such an agreement, Miller could not as a matter of law prove a trade secret misappropriation claim under ITSA—as proof that the plaintiff took appropriate steps to keep a trade secret confidential is a requirement of an ITSA claim. Continue reading ›

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