Lowrance v. Hacker, 87-2388

• Decision Date: 26 January 1989
• Docket Number: No. 87-2388,87-2388
• Citation: 866 F.2d 950
• Parties: Thomas J. LOWRANCE, Plaintiff-Appellee, v. Stephen J. HACKER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 950

866 F.2d 950

Thomas J. LOWRANCE, Plaintiff-Appellee, v. Stephen J. HACKER, Defendant-Appellant.

No. 87-2388.

United States Court of Appeals Seventh Circuit.

Argued Sept. 7, 1988.

Decided Jan. 26, 1989.

L. Andrew Brehm, Schuyler Roche & Zwirner, Chicago, Ill., for defendant-appellant.

Morris W. Ellis, Ellis & Ellis, Chicago, Ill., for plaintiff-appellee.

Before WOOD, Jr., and COFFEY, Circuit Judges, and GRANT, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

Plaintiff Thomas J. Lowrance brought this action against Stephen J. Hacker to collect monies allegedly owed by Hacker as a result of Hacker's commodity trading activities. Hacker raised the affirmative defense of accord and satisfaction, claiming that agreement was reached between the parties discharging any remaining debts. The district court found that Hacker failed to establish the defense of accord and satisfaction and awarded the plaintiff $39,309.30. Hacker appeals from that judgment.

Plaintiff Lowrance, a resident of Illinois, originally filed this action in the Circuit Court of Cook County, Illinois. Defendant Hacker, a resident of Florida, timely removed the case to federal district court under 28 U.S.C. Secs. 1441, 1446.

Lowrance was a licensed commodities trading advisor, engaged in clearing trades for customers involving commodity futures contracts bought and sold on the various commodity exchanges. Hacker was a heavy trader in the commodity futures market. From June to September, 1984, Hacker utilized Lowrance's services as a trading advisor. Lowrance brought this action as the assignee of Rosenthal & Co. ("Rosenthal"). Rosenthal was a commodities brokerage firm located in Chicago. Rosenthal acted as a clearinghouse for persons interested in trading commodity futures contracts. In February 1984, Hacker opened a customer account with Rosenthal. Hacker executed a limited power of attorney authorizing Lowrance to act as his agent in various trading transactions and Lowrance became Hacker's commodities trading advisor with respect to his Rosenthal account. Hacker agreed to indemnify any indebtedness arising from any trade or debit balance due thereon. All trading on Hacker's behalf was done through Lowrance.

During the period from June to September, 1984, Hacker actively traded in the futures markets. His trading was remarkably unsuccessful and during that time period, to cover losses and to meet margin requirements, Hacker deposited more than $500,000 into his Rosenthal account. Despite these deposits, Hacker's account had a debit balance of $52,309.30 at the end of all trading. Most of these losses were accumulated through trading that took place on September 13. On September 12, Hacker's account had a debit balance of approximately $17,000 and Hacker deposited $25,000 into his Rosenthal account on that date, giving him a credit balance of approximately $8,000. Losses taken on September 13 created a final debit balance of $52,309.30.

Pursuant to a contractual relationship between Lowrance and Rosenthal, Lowrance was required to pay Rosenthal the amount of any debit balance owed by one of his customers. Lowrance paid the $52,309.30 balance and received an assignment of all rights and remedies from Rosenthal. The district court found that on September 14, Lowrance informed Hacker by phone of the existence of a large debt in the approximate amount of $47,000. The amount later grew to $52,309.30 when Hacker's positions in another commodity were liquidated. Lowrance made numerous attempts to recover the debit balance from Hacker, who repeatedly refused to pay. On Sunday, November 4, Lowrance traveled to Hacker's residence near Orlando, Florida to discuss the situation in person. Hacker again refused to pay.

On February 21, 1985, Lowrance and Hacker discussed the $52,309.30 debt on the telephone. Hacker told Lowrance that a judgment in excess of $1,000,000 had just been entered against him in a proceeding brought by American Can Co. Hacker then offered to make a partial payment of the debt. Lowrance claims that Hacker promised to pay $14,000 and never told him the payment was intended to settle the entire debt. Hacker claims that he offered $13,000 in satisfaction of the outstanding debt.

It is undisputed that on that same day Hacker sent Lowrance a form letter of agreement, unexecuted by Hacker, along with a check for $13,000. The letter provided in part that "in lieu of conditions which exist and lack of remedies available to improve them, I have enclosed a check which we discussed as full and final payment by me to you, your successors and assigns, for any and all outstanding balances which exist on this date of February 21, 1985." On the back of the accompanying $13,000 check, Hacker had added a provision that said "Accord and satisfaction understood in our settlement agreement."

Upon receipt of Hacker's check Lowrance deleted the words Hacker had added and inserted the following:

Restriction regarding settlement & accord & satisfaction refused. This check is accepted as partial payment only. All rights of endorser are reserved. Balance of $39,309.30 remaining due and payable plus all interest costs & fees.

Lowrance then negotiated the check. Lowrance never signed the purported agreement sent by Hacker. He never informed Hacker of his decision to strike the endorsement or of his addition of a new endorsement claiming to retain all rights to the remainder of the debt.

At trial, Hacker stipulated to Lowrance's prima facie case and offered an affirmative defense of accord and satisfaction. Hacker claimed that Lowrance had agreed to accept the $13,000 as full payment for the debt, that the check with its endorsement constituted evidence of the agreement, and that Lowrance improperly struck the accord and satisfaction language from the back of the check. Hacker also argued that his perilous financial situation created the necessary conditions for an accord and satisfaction. The district court, applying Illinois law, found that there was no accord and satisfaction in this case and awarded Lowrance $39,309.30.

The district court held that Hacker failed to establish the defense of accord and satisfaction because no bona fide dispute about the amount of Hacker's debt existed between the parties. Under Illinois law:

To constitute an accord and satisfaction there must be an honest dispute between the parties, a tender with explicit understanding of both parties that it was in full payment of all demands, and an acceptance by the creditor with the understanding that the tender is accepted in full payment. As with all contracts, to be enforceable there must be consideration, a meeting of the minds with the intent to compromise and, finally, execution of the agreement.

W.E. Erickson Const., Inc. v. Congress-Kenilworth Corp., 132 Ill.App.3d 260, 269, 87 Ill.Dec. 536, 543, 477 N.E.2d 513, 520 (1985) (citations omitted). The burden of proving these elements lies with the party asserting the accord and satisfaction defense. Kreutz v. Jacobs, 39 Ill.App.3d 515, 349 N.E.2d 93 (1976) (citing Insurance Co. of N. America v. Knight, 8 Ill.App.3d 871, 291 N.E.2d 40, appeal dismissed, 414 U.S. 804, 414 U.S. 804, 38 L.Ed.2d 40 (1972)).

The testimony at trial revolved around the issue of whether there was a bona fide dispute as to the amount Hacker owed Lowrance. Illinois law requires that, in most situations, such a dispute exist. Sears, Sucsy & Co. v. Insurance Co. of N. America, 392 F.Supp. 398 (N.D.Ill.1975) (Accord and satisfaction "is an agreement or settlement of an existing dispute, controversy or demand which presupposes a disagreement as to what is due.") (citing Canton Union Oil v. Parlin & Orendorff, 117 Ill.App. 622, 624, aff'd, 215 Ill. 244, 74 N.E. 143 (1905)). See also Quaintance Associates, Inc. v. PLM, Inc., 95 Ill.App.3d 818, 821-22, 51 Ill.Dec. 153, 154, 420 N.E.2d 567, 569-70 (1981) ("The partial payment of a fixed and certain demand which is due and not in dispute is no satisfaction of the whole debt even where the creditor agrees to receive a part for the whole and gives a receipt for the whole demand."). This requirement is designed to insure that the necessary consideration is present to create the contract. Erickson, 132 Ill.App.3d 260, 269, 87 Ill.Dec. 536, 543-44, 477 N.E.2d 513, 520-21 (1985) (Partial payment of undisputed debt does not constitute necessary consideration.). The district court found that while Hacker had proven most of the elements required for an accord and satisfaction, he had failed to prove that a bona fide dispute existed concerning the amount of the debt.

At trial, Hacker argued that Lowrance had exceeded his authority in carrying out commodities trades, thereby creating unauthorized losses. Hacker asserted that Lowrance had churned his commodities account, ¹ failed to follow Hacker's trading advice, and negligently managed his trading transactions. He maintained that Lowrance exceeded his authority in making the trades that led to the losses of September 13, since he had requested that Lowrance limit losses to the $8,000 left in his account at the beginning of the trading day. According to Hacker, these assertions show that there was a dispute as to the amount of the debt. Hacker claimed that he and Lowrance had discussed the disagreement on a number of occasions, culminating in the February 21 agreement to settle the debt with a $13,000 payment.

The district court rejected this testimony. The court noted that Hacker was a seasoned commodities trader who understood the risks involved in trading. He was well aware of the difficulties involved in controlling profits and losses in the market on any trading day. Most importantly, the district court found that Hacker never contested the amount of the debt at any time before he made his partial payment. In October when Lowrance wrote to Hacker asking for payment and setting out the details of the claim, Hacker failed to respond...