Echo, Inc. v. Whitson Co., Inc.

• Decision Date: 04 August 1997
• Docket Number: No. 96-1970.,96-1970.
• Citation: Echo, Inc. v. Whitson Co., 121 F.3d 1099 (7th Cir. 1997)
• Parties: ECHO, INCORPORATED, an Illinois corporation, Plaintiff-Appellee, v. WHITSON COMPANY, INCORPORATED, doing business as Power Tool Company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

121 F.3d 1099

ECHO, INCORPORATED, an Illinois corporation, Plaintiff-Appellee, v. WHITSON COMPANY, INCORPORATED, doing business as Power Tool Company, Defendant-Appellant.

No. 96-1970.

United States Court of Appeals, Seventh Circuit.

Argued February 11, 1997.

Decided August 4, 1997.

Gary D. Santella, Susan M. Rentschler (argued), Masuda, Funai, Eifert & Mitchell, Chicago, IL, for plaintiff-appellee.

Michael T. Reid (argued), Halfpenny, Hahn, Roche & Marchese, Chicago, IL, for defendant-appellant.

Before COFFEY, MANION, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

In 1988, Power Tool Company (PTC) in Johnson City, Tennessee became a distributor for Echo, Inc., which manufactures outdoor portable power equipment. In 1992, however, the relationship went sour, and Echo terminated the distributorship agreement. Echo sued PTC to collect money still owed from equipment purchases, and PTC filed counterclaims based on alleged breaches by Echo. The District Court granted summary judgment for Echo on its claim, and we affirmed. ECHO, Inc. v. Whitson Co., 52 F.3d 702 (7th Cir.1995) (Echo I). The case now comes back to us for review of the District Court's resolution of PTC's counterclaims. The District Court granted summary judgment for Echo on one of PTC's counterclaims, dismissed two of the counterclaims for failure to state a claim, and entered judgment for PTC on the last counterclaim pursuant to an accepted offer of judgment under Federal Rule of Civil Procedure 68. PTC now appeals.

I. HISTORY

Three documents tell much of the story of this case. The first document is the distributorship agreement entered into by Echo and PTC in 1988. The second is a preseason purchase order that PTC made for equipment it would need for the 1993 selling season. We will refer to this document as the Spring Order. In August 1992, Echo's regional sales manager and PTC's president negotiated and signed the Spring Order, which requested Echo to deliver the equipment in installments over the period between December 1992 and July 1993. The third document is an October 15, 1992 letter to PTC from Echo's supervisor of customer service. The letter is addressed generically "To All Distributors" and mentions three enclosed computer reports "recapping your 1993 Spring Booking of Units and Accessories." The letter states that the computer reports should be helpful "when reconciling your order" and that "it is extremely important to verify that the information on these reports matches your records" because "mistakes and omissions can sometimes occur" when entering the orders into the computer.

Despite this correspondence, Echo never shipped the goods PTC requested in the Spring Order. On October 30, 1992, PTC's account with Echo showed $241 of charges more than 30 days overdue. By November 30, however, PTC's account had an overdue balance of $131,218. In between these two dates, on November 17, Echo gave PTC a letter terminating PTC as a distributor, effective in 60 days. The letter states that PTC was being terminated based on

lack of sales performance, the reduction in the size of your company by giving up a major line, the reduction of your sales staff (which will have a negative impact on ECHO penetration in the marketplace), the reduction in service training in the marketplace (which impacts dealer product knowledge) and the change in Power Tool's ability to adequately acquire financing to support the line without putting an undue burden on ECHO, INCORPORATED.

PTC did not take kindly to Echo's termination, telling Echo in a November 25 letter that PTC would treat any such termination as a breach of contract. Echo responded with a letter on December 1 reaffirming its intention to terminate the distributorship, and PTC responded with a December 4 letter threatening legal action. To avoid litigation, Echo reversed the termination. PTC never learned of the reversal, however, because Echo failed to communicate the news to PTC — a failure Echo claims was an inadvertent mistake. In December 1992, therefore, PTC was under the impression that it would no longer be a distributor when the termination took effect in January 1993.

As for PTC's outstanding balances and purchase orders, PTC's account was $216,000 overdue by December 1, 1992. PTC's Spring Order had requested the goods to start arriving during that December, but Echo advised PTC in a December 10 letter that it would deliver goods only on a C.O.D. basis because PTC's account was so delinquent. After that letter, PTC apparently neither asked that the Spring Order be delivered C.O.D. nor even inquired to Echo about the Spring Order. By March 1, 1993, PTC had an overdue balance of $222,000, some of which was more than 90 days overdue. On March 3, Echo gave PTC written notice that it was terminating PTC based on paragraph 8.2(C)(xi) of the distributorship agreement, which authorizes immediate termination "if Distributor becomes more than ninety (90) days in arrears in payment of its account." By June 1993, Echo and PTC were in court, and PTC filed the counterclaims we must consider here.

II. ANALYSIS

A. Breach of Contract — Spring Order

PTC's first counterclaim alleges that Echo breached a contract based on PTC's Spring Order. More specifically, PTC contends that the Spring Order was an offer that Echo accepted either 1) when Echo's regional sales manager signed the order, or 2) when Echo sent PTC the recap of the order. The District Court denied PTC's motion for summary judgment on this counterclaim and instead granted summary judgment for Echo, finding that Echo never accepted the offer. Under Illinois law,¹ when the basic facts are not in dispute, the existence of a contract is a question of law. Cottingham v. National Mut. Church Ins. Co., 290 Ill. 26, 124 N.E. 822, 825 (1919); Lewis-Connelly v. Board of Educ. of Deerfield Pub. Sch., Dist. 109, 277 Ill.App.3d 554, 214 Ill.Dec. 92, 94, 660 N.E.2d 283, 285 (1996); Yorke v. B.F. Goodrich, Co., 130 Ill. App.3d 220, 85 Ill.Dec. 606, 608, 474 N.E.2d 20, 22 (1985). Issues of contract formation are therefore particularly well-suited for disposition on summary judgment, and we review the District Court's grant of summary judgment de novo, see Malcak v. Westchester Park Dist., 754 F.2d 239, 243 (7th Cir.1985).

PTC first argues that the signature of Echo's sales manager on the Spring Order constitutes an acceptance of PTC's offer. In its simplest form, this argument must lose because paragraph 5.3 of the distributorship agreement provides, "All orders for Products shall be subject to acceptance by Echo at Lake Zurich, Illinois" where its headquarters were located. PTC therefore embellishes its argument, suggesting that Echo waived this express provision of the agreement by sending its sales manager to negotiate and sign the Spring Order.

Contrary to PTC's suggestion, however, we find no indication of waiver by Echo. This transaction is governed by the UCC because the predominant purpose was the sale of goods, see Yorke, 85 Ill.Dec. 606, 474 N.E.2d at 22. Section 1-205 of the UCC states that the express terms of an agreement and an applicable course of dealing between parties "shall be construed wherever reasonable as consistent with each other," 810 Ill. Comp. Stat. 5/1-205(4). We find that Echo's practice of sending sales managers out to negotiate with distributors is plainly consistent with the distributorship agreement — Echo was merely soliciting offers that subsequently could be accepted in Lake Zurich. Moreover, § 2-105 states that if an express agreement and course of dealing cannot be reasonably construed as consistent, then the express terms control over the course of dealing. See 810 Ill. Comp. Stat. 5/1205(4). Thus, even if Echo's practice of sending out sales managers was inconsistent with the distributorship agreement, the UCC mandates that the express agreement trumps the course of dealing. This conclusion is reinforced by Illinois cases where courts, faced with purchase orders containing specific provisions regarding a seller's acceptance, have been reluctant to find contractual obligation based on other conduct by the seller. See Beard Implement Co. v. Krusa, 208 Ill. App.3d 953, 153 Ill.Dec. 387, 391, 567 N.E.2d 345, 350 (1991) (no contract formed where purchase order unambiguously required seller's signature for acceptance); Zinni v. Royal LincolnMercury, Inc., 84 Ill.App.3d 1093, 40 Ill.Dec. 511, 513, 406 N.E.2d 212, 214 (1980) ("Where an order form containing the buyer's offer, requires the acceptance of the seller, no contract will exist until the seller has manifested acceptance of the offer."). In short, no contract was yet formed when Echo's sales manager signed the Spring Order.

PTC's fallback argument is that Echo's October 15, 1992 letter signaled Echo's acceptance of the Spring Order. The letter, after all, did come from Lake Zurich and would be a logical medium by which to accept PTC's offer. In support of PTC's provision are UCC provisions stating that "an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances," 810 Ill. Comp. Stat. 5/2-206(1)(a), and that an "agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined," 810 Ill. Comp. Stat. 5/2-204(2). Nonetheless, the UCC retains the basic common law requirements of offer, acceptance, and consideration. Even though the "modes of a valid acceptance may be varied, the requirement of an acceptance by the offeror still exists." Zinni, 40 Ill.Dec. at 513, 406 N.E.2d at 214.

In this case, we cannot say that the letter sent by Echo was an objective manifestation of acceptance that could create a contract. The language of the letter does not use the vocabulary of acceptance. The letter, for example, describes attached computer reports as "recapping" — not accepting — the Spring Order. The letter mentions the need for "r...