McElroy v. B.F. Goodrich Co.
| Citation | 73 F.3d 722 |
| Decision Date | 09 January 1996 |
| Docket Number | No. 95-2356,95-2356 |
| Parties | Kenneth W. McELROY, Plaintiff-Appellant, v. B.F. GOODRICH COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
George F. Galland, Jr., Jeffrey I. Cummings (argued), Davis, Miner, Barnhill & Galland, Chicago, IL, for Plaintiff-Appellant.
Janet L. Jannusch, David G. Lubben (argued), Keck, Mahin & Cate, Peoria, IL, for Defendant-Appellee.
Before POSNER, Chief Judge, and WOOD, JR., and EVANS, Circuit Judges.
The plaintiff, Kenneth W. McElroy, brought this diversity suit against the B.F. Goodrich Company for breach of his three-year contract to act as exclusive sales representative for the "Condor" brand of aircraft tires, which Goodrich manufactured. The contract entitled McElroy to buy the molds used to manufacture "Condor" aircraft tires, and the tradename "Condor," in the event that Goodrich "permanently discontinue[d] production" of aircraft tires during the term of the contract. The production of Condor tires was not discontinued during the term of the contract. What happened is that Goodrich sold its entire aircraft-tires business to another tire company, Michelin, which continued their production. The question is whether a sale of productive assets, as distinguished from the abandonment of production, is permanent discontinuance of production within the meaning of the contract and Illinois law, which governs the substantive issues in this case. The district judge held that it was not, and that in any event McElroy had waived his claim, and on both grounds granted summary judgment for Goodrich. McElroy quite properly acknowledged at argument that the judge's interpretation of the contract was reasonable but he argues that the contrary interpretation is also reasonable and therefore a trial is necessary to establish the contract's true meaning. We think it is true that if the words "to permanently discontinue production" are taken in isolation, the contract is ambiguous. For there is no doubt that, in a literal sense, Goodrich discontinued production of Condor brand aircraft tires, though, equally, the production of the brand did not cease.
So let us begin to build some context. The facts as they were presented to the district judge, when construed as favorably to the plaintiff as reason permits, are as follows. Back in 1983 McElroy and his father developed, in association with the Armstrong Tire and Rubber Company, an aircraft tire that they dubbed the "Condor." The McElroys made a contract with Armstrong appointing them exclusive sales representatives for the new tire, which was manufactured in a plant owned by Armstrong. As required by the contract, the McElroys devoted their best efforts to promoting the new brand. Sales were brisk. But in 1987 Armstrong sold the plant, along with the molds used to manufacture Condor aircraft tires, and the name, and assigned the exclusive-representation contract as well, to DICO Tire, Inc. DICO, however, decided not to manufacture the tires and instead offered to sell Kenneth McElroy the molds for their scrap value, some $25,000, although the replacement cost may have exceeded $200,000.
When he received this offer, McElroy began looking for another company that would manufacture Condor aircraft tires. Goodrich was interested, and negotiations ensued during which Goodrich informed McElroy, falsely (or so we must assume given the procedural posture of the case), that the Federal Aviation Administration would require DICO to sell the molds to Goodrich if Goodrich were to manufacture the tires. McElroy persuaded DICO to sell the molds to Goodrich at the same rock-bottom price that it had offered to sell them to him. Goodrich wanted McElroy, who had done so much to build demand for the brand, to be its exclusive sales representative. McElroy was concerned that Goodrich might "stop [production] like Armstrong had" or perhaps decide never to commence production, like DICO. So he pressed for inclusion in the contract of a clause that would allow him to recapture the molds and name if there was "some decision on BFG's part to stop production." He hoped by such a clause to regain control of the molds "if they traded hands again." Goodrich did include a clause about the discontinuance of production--the clause that is at issue in this litigation--and then placed great pressure on McElroy to sign. The form of that pressure is unclear. Apparently McElroy felt that since Goodrich already had the molds, the name, a backlog of orders, and even his list of customers, it could and would go it alone in producing Condor aircraft tires if he balked at signing the contract that Goodrich had prepared. So he signed.
That was in April of 1988. Only seven months later, Goodrich sold its entire aerospace and defense division, the assets of which included the Condor molds and name, to Michelin Aircraft Tire Corporation. As part of the sale, Goodrich assigned McElroy's exclusive sales representation contract to Michelin. McElroy remained as Michelin's exclusive sales representative for the Condor line until December 1990, when the contract expired. Michelin did not renew the contract. McElroy was out of the Condor business. He brought this suit in 1994.
We set to one side any issue of fraud, duress, or unconscionability. Despite the hints of these wrongs in the facts alleged by McElroy, the only breach of a legal duty that is charged is the breach of a written contract. The reason, we speculate (it is only speculation), is that a tort claim, a claim of unjust enrichment, or a claim for reformation of the contract would be barred by the applicable statutes of limitations, McElroy having waited six years after the alleged breach of contract to file this suit.
The district judge thought that by continuing for two years as Michelin's exclusive sales representative, McElroy had waived his claim of breach of contract. There was, of course, no express waiver. Nor is there any basis, despite Goodrich's argument in this court, for a defense of estoppel, for Goodrich was not harmed by McElroy's continuing on with Michelin. But if a party to a contract engages in conduct that demonstrates that he intends to give up a right, then he has waived it and cannot revive it. Cole Taylor Bank v. Truck Ins. Exchange, 51 F.3d 736, 739 (7th Cir.1995).
The contractual doctrine of waiver, whether express or implied, seems, as we observed in the Cole Taylor case, to rest on an idea no more complicated than that any competent adult can abandon a legal right and if he does so then he has lost it forever. But we do not see how McElroy's going to work for Michelin shows that he was abandoning any claim against Goodrich. He was simply making the best of a bad deal--and incidentally mitigating his damages. Had he refused to go to work for Michelin he would have lost the source of his livelihood (thus jacking up his damages) and might have exposed himself to legal liability to Michelin, since there was nothing in his contract with Goodrich, as we shall see, that forbade Goodrich to assign the contract. If his working for Michelin was somehow detrimental to Goodrich, he might be barred by the doctrine of estoppel from pressing this suit. But there was no detriment. The defense is waiver, requiring (in the case of implied waiver) conduct from which a confident inference of abandonment can be drawn. To prevent the doctrine of waiver from becoming a facile route to evading contractual obligations through self-serving testimony ("he waived"), the Illinois courts require that for a contractual waiver to be effective it must "either have induced reliance or ... be clearly inferable from the circumstances." Id. at 739 (emphasis in original). It is manifest that neither condition is satisfied here.
The district judge's alternative ground for decision was that Goodrich had not broken its contract by not offering to resell the molds and tradename to McElroy. The clause at issue reads as follows (the contract identifies Goodrich as "Condor," but for the sake of intelligibility we have restored "Goodrich"...
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