Marine Bank, Nat. Ass'n v. Meat Counter, Inc., 84 C 8661.

• Decision Date: 10 March 1986
• Docket Number: No. 84 C 8661.,84 C 8661.
• Citation: 635 F. Supp. 1029
• Parties: MARINE BANK, NATIONAL ASSOCIATION, Plaintiff, v. The MEAT COUNTER, INC., an Illinois corporation, Patrick Falcone and Joseph Falcone, Defendants.
• Court: U.S. District Court — Northern District of Illinois

635 F. Supp. 1029

MARINE BANK, NATIONAL ASSOCIATION, Plaintiff, v. The MEAT COUNTER, INC., an Illinois corporation, Patrick Falcone and Joseph Falcone, Defendants.

No. 84 C 8661.

United States District Court, N.D. Illinois, E.D.

March 10, 1986.

James R. Gannon, Paul V. Esposito, Douglas A. Lindsay and Pamela A. Rons, Lewis, Overbeck & Furman, Chicago, Ill., for plaintiff.

R.S. Maione, Drugas, Malone, Morgan & Hyink, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

In 1982, defendant Joseph Falcone ("Joseph"), a butcher, signed a guaranty which enabled his son Patrick, also a butcher, to obtain financing and equipment from plaintiff Marine Bank ("the Bank") and thus to start his own butcher business. Patrick's business defaulted, and the Bank demanded that Joseph satisfy the debt. This breach of contract lawsuit followed Joseph's refusal to pay. The parties have filed cross motions for summary judgment as to Joseph's liability in Count II. Because we hold for the reasons stated below that a material misrepresentation induced Joseph to sign the guaranty, he is entitled to avoid his obligations under that contract. Accordingly, his motion for summary judgment will be granted and the Bank's will be denied.

The following facts, as established by the affidavits, deposition testimony¹ and other documents, are uncontested. Joseph is 63 years old and has been a butcher since 1938. Since 1956 he had been Secretary and Treasurer, as well as a principal shareholder, of International Meat Co., a small, closely held meat cutting business he started with some friends of his. Al LaValle, the President, handles most of the business dealings, such as financing, leasing, etc. Joseph's principal job is to cut meat.

In late 1982 Patrick had cut meat at International for eighteen years when he told Joseph that he wanted to start his own business. In early 1983, while both were at work at International Meat, Patrick approached Joseph and told him that a man from the leasing company was there; that he was having trouble getting financing; and that Joseph would have to "sign for" Patrick in order for Patrick to go into business. Joseph and Patrick then met with Jim Roemer, an agent of the Bank.² Before signing anything, Joseph said to Roemer, "I don't want to be responsible for anything." Roemer replied, "I'll assure you you're not going to be responsible for anything. In case Pat can't make it, we'll just take the fixtures back." Joseph repeated his concern and received a second assurance. Joseph then signed the guaranty without reading its contents. The whole transaction happened very quickly. He says he had "no chance to read it," although it appears that Joseph simply did not ask or try to read it. In any event, he was never given a copy of the papers he signed. The document was one page long, in fine print throughout and contained this language in the fourth paragraph:

This Guarantee shall be construed as an absolute and unconditional guarantee of payment, without regard to the validity, regularity, or enforceability of any obligation or purported obligation of Obligor. MBL the Bank shall have its remedy under this Guarantee without being obliged to resort first to any security or to any other remedy or remedies to enforce payment or collection of the obligations hereby guaranteed, and may pursue all or any of its remedies at one or at different times.

When Patrick defaulted, the Bank pressed Joseph to pay for the debt in accordance with the terms of the guaranty. Joseph refused and this lawsuit was filed. Among other issues raised in the cross-motions for summary judgment, Joseph asserts as an affirmative defense the fact that he relied on Roemer's material misrepresentation concerning the scope of his duty in the guaranty. Finding this defense dispositive, we do not reach these other issues.

The Court can grant a motion for summary judgment only if the moving party can show "there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law." Fed.R. Civ.P. 56(c). We must view the evidence, as well as reasonable inferences created by the evidence, in the light most favorable to the party opposing the motion. See, e.g., Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir.1984). If the moving party cannot meet its "strict burden," its motion will fail, even if the other party mounts no opposition. Id. But when the moving party does carry its burden, the burden shifts to the other party to create a genuine issue of material fact; that party cannot merely conjure up bare pleadings or unsubstantiated assertions in meeting this burden. Fed.R.Civ.P. 56(e); Big O, 741 F.2d at 163.

At the outset, we must examine whether there is a "genuine issue" as to the facts detailed above, which (as we will see) are material to Joseph's first affirmative defense of misrepresentation. We hold that no genuine issue exists as to those facts. Most significantly, there is no genuine issue that Roemer made the misrepresentation Falcone says he made. That statement, as well as other facts recited above, is borne out by the Falcones' affidavits and depositions. The Bank has presented no evidence to contradict these facts, not even an affidavit from Roemer (although it does make a futile attempt to find some minor inconsistencies between the affidavits and depositions, see n. 1 above). As such, these uncontroverted facts will be accepted as true:

In spite of the usual rule that all doubts are resolved against the moving party, there is one inference to which he is entitled by virtue of the last sentence in Rule 56(e). If the movant presents credible evidence that would entitle him to a directed verdict if not controverted at trial, this evidence must be accepted as true on a motion for summary judgment when the party opposing the motion does not offer counter-affidavits or other evidentiary material supporting his contention that an issue of fact remains, or does not show a good reason, in accordance with Rule 56(e), why he is unable to present facts justifying his opposition to the motion.

10A C. Wright, A. Miller & M. Kane, Federal Practice & Procedure, § 2727 (1983) at 133-137; see also Wang v. Lake Maxinhall Estates, 531 F.2d 832, 835 n. 10 (7th Cir.1976).

In assessing the legal import of these uncontroverted facts, the Court must view them through the lens of Wisconsin law. Since this is a diversity case, we apply the choice of law rules of the forum state, Illinois. Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Illinois honors the parties' intent about governing law, if that intent is express. Hofeld v. Nationwide Life Ins. Co., 59 Ill.2d 522, 322 N.E.2d 454 (1975). The contract in dispute here states that Wisconsin law governs cases arising from it. The parties agree that Wisconsin law governs here.

In First National Bank and Trust Co. of Racine v. Notte, 97 Wis.2d 207, 293 N.W.2d 530 (1980), the Supreme Court of Wisconsin held that the contract defense of misrepresentation should be judged by modern principles as expressed in the Second Restatement of Contracts (1981).³ 97 Wis.2d at 222, 293 N.W.2d at 538. According to the Restatement and Notte, two types of misrepresentation⁴ — "fraudulent" or "material" — may make a contract voidable. Restatement, § 164(1) (1981). Fraudulent misrepresentation requires "scienter," that is intent by the person making the misrepresentation to mislead or deceive. See § 162(1) and comment b. Since we have no direct evidence as to Roemer's intent, we do not go further with this strand. However, even innocent misrepresentations may suffice as a contract defense if they are material. Notte, 97 Wis.2d at 222-23, 293 N.W.2d at 538. "A misrepresentation is material if it is likely to induce a reasonable person to manifest his assent, or if the maker knows that it is likely that the recipient will be induced to manifest his assent by the misrepresentation." Id.; Restatement § 162(2). The materiality requirement is objective and is determined from the viewpoint of the speaker; the inquiry focusses on whether a reasonable person would be likely to assent to the contract on the basis of the misrepresentation. Notte, 97 Wis.2d at 223, 293 N.W.2d at 538; Rest. § 162(2), comment c. In other words, does the misrepresentation relate to a term or condition the prudent person would find important? Finally, for the misrepresentation defense to succeed, the recipient must rely, and justifiably so, on the misrepresentation; that is, it must "induce" him or her to assent. Restatement § 164(1). In contrast to the materiality requirement, this "justifiable reliance" factor focusses on the hearer of the misrepresentation.

From the foregoing we distill the following elements for the contract defense of material misrepresentation:

(1) There must be a misrepresentation, which

(2) must be material and

(3) induce the other party to assent;

(4) the other party must justifiably rely on the misrepresentation.

Joseph has satisfied these elements in this case.

a. Misrepresentation. It is clear, and the Bank does not deny, that Roemer's statement is a misrepresentation as defined in Notte and § 159 of the Restatement. He said that the contract would not extend beyond the equipment, when it plainly said otherwise. This is not an "opinion," which usually does not justify reliance. See generally Restatement, §§ 168-170.

b. Materiality. Nor does the Bank deny that the misrepresentation was material. Plainly, a "reasonable person" would likely have been induced to assent to the contract had he been told that if Pat would default, the creditor would merely seize the equipment. This type of misrepresentation went to the heart of Joseph's obligation, and thus is certainly "material" to his assent. In light of this holding, we need not rule on the applicability of the alternative definition of "material."⁵...