Central Illinois Light v. Consolidation Coal

• Decision Date: 17 November 2003
• Docket Number: No. 03-1208.,03-1208.
• Citation: 349 F.3d 488
• Parties: CENTRAL ILLINOIS LIGHT COMPANY, Plaintiff-Appellant, v. CONSOLIDATION COAL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 488

349 F.3d 488

CENTRAL ILLINOIS LIGHT COMPANY, Plaintiff-Appellant, v. CONSOLIDATION COAL COMPANY, Defendant-Appellee.

No. 03-1208.

United States Court of Appeals, Seventh Circuit.

Argued September 11, 2003.

Decided November 17, 2003.

Rehearing Denied December 9, 2003.

C. Barry Montgomery (argued), Christina Ketcham, Williams, Montgomery & John, Chicago, IL, for Plaintiff-Appellant.

Charles A. Weiss (argued), Bryan Cave, St. Louis, MO, for Defendant-Appellee.

Before FLAUM, Chief Judge, and POSNER and EASTERBROOK, Circuit Judges.

POSNER, Circuit Judge.

The district judge granted summary judgment for the defendant, Consolidation Coal Company, in this diversity breach of contract suit brought by Central Illinois Light Company (CILCO). 235 F.Supp.2d 916 (C.D.Ill.2002). The judge's ground was that CILCO had failed to comply with the Uniform Commercial Code's statute of frauds (codified in Illinois as 810 ILCS, ch. 5). Consolidation had been selling coal to CILCO for several years under one-year contracts. Between September 2000 and June 2001 the parties engaged in protracted negotiations for a contract to succeed their 2000 contract, which was due to expire on the last day of that year. CILCO contends that in December, in the course of the negotiations, it made an oral contract with Consolidation to buy from the latter 1.5 million tons of coal in 2001 and 2002 at a total price of $34 million.

The negotiations involved the exchange of many documents, but documents that merely evidence negotiations do not satisfy the statute of frauds. Lee v. Voyles, 898 F.2d 76, 78-79 (7th Cir.1990) (interpreting Illinois UCC law); General Trading Int'l, Inc. v. Wal-Mart Stores, Inc., 320 F.3d 831, 836 (8th Cir.2003); Dutchess Development Co. v. Jo-Jam Estates, Inc., 134 A.D.2d 478, 521 N.Y.S.2d 262, 263 (1987); Howard Construction Co. v. Jeff-Cole Quarries, Inc., 669 S.W.2d 221, 227-28 (Mo.App.1983). There has to be "some writing sufficient to indicate that a contract for sale has been made," provided it has been signed by the party (or the party's agent) against whom the contract is sought to be enforced. UCC § 2-201(1).

It is true that the contracting parties in this case are "merchants," defined as those "who deal in goods of the kind" involved in the transaction at issue or who hold themselves out "as having knowledge or skill peculiar to the practices or goods involved in the transaction." UCC § 2-104(1). (As White and Summers explain, "the first phrase captures the jeweler, the hardware store owner, the haberdasher, and others selling from inventory ... [while] the second description, having to do with occupation, knowledge, and skill, includes electricians, plumbers, carpenters, boat builders, and the like." 1 James J. White & Robert S. Summers, Uniform Commercial Code § 9-7, p. 513 (4th ed. 1995).) In a contract between merchants, the requirement of a signature is relaxed; it is enough "if within a reasonable time" of the making of the alleged contract "a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents," unless he objects in writing within ten days. UCC § 2-201(2). But signature, as we'll see, is not a serious issue in this case.

A further qualification — one that is potentially important to this case — is that a signed document is not necessarily disqualified because it preceded the making of the contract. Monetti, S.P.A. v. Anchor Hocking Corp., 931 F.2d 1178, 1182-83 (7th Cir.1991). The clearest case would be one in which the party sought to be held to the contract (that is, the party asserting the statute of frauds defense) had made a written offer which the offeree had accepted in writing explicitly stating that he was accepting all the terms in the offer. The statute of frauds defense would fail even though the only writing signed by the party sought to be held to the contract had preceded the making of the contract, which would have occurred only on acceptance. Huntington Beach Union High School District v. Continental Information Systems Corp., 621 F.2d 353, 356 (9th Cir.1980). But that case is to be distinguished not only from one in which the acceptance is oral, so that there is no written confirmation of the existence of a contract (we thus disagree with the suggestion in Farrow v. Cahill, 663 F.2d 201, 206-10 (D.C.Cir.1980), that a written offer can be the confirmation that satisfies the statute of frauds even when the acceptance is oral), but also, and more directly pertinent to this case, from a case involving "notes made in preparation for a negotiating session,... lest a breakdown of contract negotiations become the launching pad for a suit on an alleged oral contract." Monetti, S.P.A. v. Anchor Hocking Corp., supra, 931 F.2d at 1182.

The critical point — issues of signature, promptness, and temporal sequence to one side — is that the documentation presented by the party seeking to demonstrate compliance with the statute of frauds must "indicate" or "confirm" the existence of a contract. CILCO seems to think that it is enough that the documentation is consistent with the existence of a contract — that it does not negate the contract's existence — but that can't be right. The writing must, remember, be "sufficient to indicate" that there is a contract. Howard Construction Co. v. Jeff-Cole Quarries, Inc., supra, 669 S.W.2d at 227-28. Its existence must, at the very least, be more probable than not. See 1 White & Summers, supra § 2-4, pp. 64-65. Otherwise the statute of frauds would have no application to a case in which the parties had exchanged documents in the course of negotiations; and that is not the law. E.g., Monetti, S.P.A. v. Anchor Hocking Corp., supra, 931 F.2d at 1180, 1182-83; Howard Construction Co. v. Jeff-Cole Quarries, Inc., supra, 669 S.W.2d at 227-28; BDT Products, Inc. v. Lexmark Int'l, Inc., 274 F.Supp.2d 880, 889 (E.D.Ky. 2003). A mere written offer, without written proof of acceptance, would then satisfy the statute of frauds, and that is not correct either. Monetti, S.P.A. v. Anchor Hocking Corp., supra, 931 F.2d at 1182; R.S. Bennett & Co. v. Economy Mechanical Industries, Inc., 606 F.2d 182, 184-86 (7th Cir.1979) (interpreting Illinois UCC law). The documentation must enable an inference to be drawn that there was a contract, though once that has been established the parties are free to present oral evidence of the contract's terms, Guel v. Bullock, 127 Ill.App.3d 36, 82 Ill.Dec. 264, 468 N.E.2d 811, 814-15 (1984); Impossible Electronic Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1034 (5th Cir.1982) — all but the quantity term, which must be stated in the writing that establishes compliance with the statute of frauds. UCC § 2-201(1).

The principal document on which CILCO relies to show that an oral contract for the sale to it of 1.5 million tons of coal was indeed made in December of 2000 is an internal Consolidation document created that month entitled "Coal Sales Invoicing System Order Print." The document has the form of an invoice and contains most of the detail that an invoice for a two-year sale of 1.5 million tons of coal would be expected to contain, except the price for the second year's shipments. The document states that it was created by Debbie Womack and "released to system by" Beverly Wilson. Neither of these individuals is otherwise identified. The district judge thought that without further identification of them it could not be said that the document had been signed by an agent of Consolidation. That was not a realistic assessment. It is obvious that the people who prepare internal documents of this sort are employees, and hence agents, of Consolidation. The judge was right that oral testimony cannot be used to supply the information required for compliance with the statute of frauds. Monetti, S.P.A. v. Anchor Hocking Corp., supra, 931 F.2d at 1181; Bazak Int'l Corp. v. Mast Industries, Inc., 73 N.Y.2d 113, 538 N.Y.S.2d 503, 535 N.E.2d 633, 635 (1989). That would be bootstrapping. But what is obvious, like what is admitted, UCC § 2-201(3)(b); URSA Farmers Cooperative Co. v. Trent, 58 Ill.App.3d 930, 16 Ill.Dec. 348, 374 N.E.2d 1123, 1125 (1978); DF Activities Corp. v. Brown, 851 F.2d 920, 923-24 (7th Cir.1988) (interpreting Illinois UCC law), need not be documented. The purpose of the statute of frauds is to protect against the uncertainty of oral testimony, and if there is...