Potomac Leasing Co. v. Chuck's Pub, Inc.

• Court: Appellate Court of Illinois
• Writing for the Court: DUNN
• Citation: Potomac Leasing Co. v. Chuck's Pub, Inc., 509 N.E.2d 751, 156 Ill.App.3d 755, 109 Ill.Dec. 90 (Ill. App. 1987)
• Decision Date: 12 June 1987
• Docket Number: No. 2-86-0025,2-86-0025
• Parties: , 109 Ill.Dec. 90 POTOMAC LEASING COMPANY, a foreign corporation, Plaintiff-Appellant, v. CHUCK'S PUB, INC., an Illinois corporation, and Charles H. Lumb, as guarantor, Defendants-Appellees.

Page 751

509 N.E.2d 751

156 Ill.App.3d 755, 109 Ill.Dec. 90

POTOMAC LEASING COMPANY, a foreign corporation, Plaintiff-Appellant, v. CHUCK'S PUB, INC., an Illinois corporation, and Charles H Lumb, as guarantor, Defendants-Appellees.

No. 2-86-0025.

Appellate Court of Illinois Second District.

June 12, 1987.

Franks & Filler, Marengo, Charmaine E. Dwyer, Marengo, for plaintiff-appellant.

Madsen & Briscoe, Cynthia J. Briscoe, Crystal Lake, for defendants-appellees.

Justice DUNN delivered the opinion of the court:

Plaintiff, Potomac Leasing Company (PLC), filed suit against defendants, Chuck's Pub, Inc., and Charles H. Lumb, to enforce a commercial lease agreement. Defendants' motion for summary judgment was granted. Plaintiff's motion to reconsider was denied. This appeal followed. Because we find the issue concerning the governing law to be dispositive in favor of plaintiff, we need not address the remaining contentions of the parties.

On August 27, 1984, PLC, a foreign corporation with its principal place of business in Michigan, entered into a commercial lease agreement with Chuck's Pub, an Illinois corporation with its principal place of business in McHenry County, Illinois. Charles H. Lumb, president of Chuck's Pub, signed a payment and performance guaranty. The subject matter of the lease agreement was a "Rair Air" french fryer. The term of the agreement was 48 months, and the monthly rental charge was $123.45. Paragraph 18 of the lease provided that the agreement shall be governed and interpreted in accordance with the laws of the State of Michigan.

On February 25, 1985, PLC filed a complaint in the circuit court of McHenry County alleging that Chuck's Pub and Charles Lumb had defaulted on the lease agreement as of October 27, 1984. In their answer, defendants denied defaulting on the lease agreement and raised an affirmative defense predicated on the Illinois Consumer Fraud and Deceptive Business Practices Act (Act). (Ill.Rev.Stat.1985, ch. 121 1/2, par. 261 et seq.) Defendants alleged that the lease agreement was governed by the Act and that the lease was invalid and void because it was in contravention of the notice of cancellation provision contained in section 2B of the Act. (Ill.Rev.Stat.1985, ch. 121 1/2, par. 262B.) Section 2B provides that the seller must include a notice of cancellation statement with the contract informing the consumer that the agreement may be cancelled within three business days of execution. Defendants alleged that PLC failed to include a notice of cancellation in the lease agreement. Pursuant to section 2B, defendants sent a notice of cancellation to PLC which defendants claim effectively cancelled the lease agreement. Defendants concluded that its obligations under the agreement ceased except to return the french fryer. PLC admitted that defendants sent them a notice of cancellation but denied the remaining allegations.

Defendants then motioned for summary judgment reasserting the claim made in their affirmative defense to the complaint. In response, PLC asserted, inter alia, that Michigan law governed as provided in the lease agreement, and, therefore, defendants' reliance on the Act was misplaced. At the conclusion of the hearing on the summary judgment motion, the trial court granted summary judgment in favor of the defendants. The trial court subsequently issued a written order finding, inter alia, that Illinois law applied in determining the validity of the lease agreement.

On appeal, PLC argues that the trial court's ruling was erroneous because the law agreed on by the parties was not contrary to the public policy of Illinois and there was a reasonable relationship between the chosen law and the transaction. Defendants respond that applying Michigan law would violate Illinois public policy because there is no comparable notice of cancellation provision in the Michigan Consumer Protection Act (Mich.Comp.Laws 1984, sec. 445.901 et seq.), and there is no reasonable relationship between the parties or the transaction and Michigan law. Defendants further argue that the lease agreement is tantamount to an adhesion contract and therefore the choice of law provision should not be honored. Finally, defendants argue that the contract was unconscionable and for that reason the choice of law provision should not be upheld.

An express choice of law provision contained in a contract will be given effect subject to certain limitations. (Reighley v. Continental Illinois National Bank & Trust Co. (1945), 390 Ill. 242, 249, 61 N.E.2d 29.) The primary limitation involves considerations of public policy. In the seminal case of McAllister v. Smith (1856), 17 Ill. 328, our supreme court stated that it would give effect to the laws of the site chosen "where it is not dangerous, inconvenient, immoral, nor contrary to the public policy of the local government." (17 Ill. 328, 334.) In McAllister, the supreme court was confronted with a contract containing a choice of law provision declaring that the usury laws of New York would govern the contract. The interest rates sanctioned by the New York law were higher than those permitted by the comparable Illinois usury law. Nevertheless, the court upheld the choice of law provision expressed by the parties. In so doing, the court stated in pertinent part:

"[W]e find numberless cases, with great uniformity, sanctioning the enforcement of contracts made under and sanctioned by the laws of another State, which are not allowed by the laws of the State where suit is brought, or where a different rule prevails.

Thus we find the marriage contract, legally solemnized or dissolved, under one jurisdiction, respected and enforced in another, under whose laws neither the obligation, nor its rescission would have been allowed. And so of the sale of lottery tickets and conduct of lotteries. So it is in relation to express or implied contracts for interest on money. Any rate per cent. sanctioned by the laws of the place where the contract is made, or by the substituted laws of the place where it is to be performed, or paid, will be recognized and enforced in the courts of other governments, whose laws would make such rate usurious. But there is a jealous vigilance of the courts to detect evasions of the usury laws, and when discovered, courts will withhold any aid to those who make foreign contracts a pretense for exacting usury at home." (17 Ill. 328, 334-35.)

Illinois courts have subsequently upheld express choice of law provisions against public policy attacks in cases addressing group insurance policies (Hofeld v. Nationwide Life Insurance Co. (1975), 59 Ill.2d 522, 322 N.E.2d 454); marriage annulments (Reighley v. Continental Illinois National Bank & Trust Co. (1945), 390 Ill. 242, 61 N.E.2d 29); and, as in McAllister, New York usury laws (Mell v. Goodbody & Co. (1973), 10 Ill.App.3d 809, 295 N.E.2d 97). On the other hand, gambling contracts valid under the foreign law chosen by the parties have not been enforced in Illinois because such contracts contravene Illinois public policy. (Thomas v. First National Bank (1904), 213 Ill. 261, 72 N.E. 801; Resorts International, Inc. v. Zonis (N.D.Ill.1984), 577 F.Supp. 876.) In short, the public policy considerations must be strong and of a fundamental nature to justify overriding the chosen law of the parties.

The lease agreement between PLC and Chuck's Pub provided in paragraph 18:

"This agreement shall be governed and interpreted in accordance with the laws of the State of Michigan. For purposes of resolving any issue pertaining to conflict of laws, this agreement shall be deemed to be fully and solely executed, performed and/or observed in the State of Michigan."

Even assuming, arguendo, that the Illinois Consumer Fraud and Deceptive Business Practices Act applies to a commercial lease transaction such as the one involved here, we do not believe that there is a sufficiently strong or fundamental public policy interest to justify overriding the parties choice of Michigan law to govern the agreement. In an arms-length business transaction, the parties' freedom to contract is an important right that must be jealously guarded and left free from unnecessary interference by the courts. Although the Michigan consumer protection statute does not include a notice of cancellation requirement, we are of the opinion that this difference alone does not warrant overriding the parties expressed choice of law. "[A] court should not refuse to apply the law of a foreign State, however unlike its own, unless it is contrary to pure morals and abstract justice, or unless the enforcement would be of evil example and harmful to its people." (Champagnie v. W.E. O'Neil Construction Co. (1979), 77 Ill.App.3d 136, 139, 32 Ill.Dec. 609, 395 N.E.2d 990.) We conclude that upholding the Michigan choice of law provision does not violate these fundamental concerns.

A second recognized limitation to an express choice of law provision is the requirement that there be some relationship between the chosen forum and the parties or the transaction. (Seeman v. Philadelphia Warehouse Co. (1927), 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123; Mell v. Goodbody & Co. (1973), 10 Ill.App.3d 809, 295 N.E.2d 97.) The purpose of this requirement is to preclude parties from arbitrarily selecting the laws of some jurisdiction which has no relation to the matter in controversy. (16 Am.Jur.2d Conflict of Laws § 78, at 126 (1979).) In Mell, the court applied the reasonable relationship test and found that the brokerage agreement involved had a sufficient relationship with the chosen forum to satisfy the reasonable relationship test. Pertinent to the present case is the court's statement that despite the numerous contacts with the chosen forum, there was also a very substantial relationship with Illinois. (10 Ill.App.3d 809, 813, 295 N.E.2d 97.) Specifically, the stockbroker maintained three branch offices in Illinois, received payments...