Court Opinion

ID: 2996712
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:30:54.812075+00
Date Added: 2024-06-11T15:03:16.168088
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 03-1208
CENTRAL ILLINOIS LIGHT COMPANY,
                                              Plaintiff-Appellant,

                               v.

CONSOLIDATION COAL COMPANY,
                                              Defendant-Appellee.
                        ____________
           Appeal from the United States District Court
               for the Central District of Illinois.
             No. 01-1477—Michael M. Mihm, Judge.
                        ____________
  ARGUED SEPTEMBER 11, 2003—DECIDED NOVEMBER 17, 2003
                        ____________

  Before FLAUM, Chief Judge, and POSNER and EASTERBROOK,
Circuit Judges.
  POSNER, Circuit Judge. The district judge granted sum-
mary 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
2                                                  No. 03-1208

and June 2001 the parties engaged in protracted negotia-
tions 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 docu-
ments, 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., 521 N.Y.S.2d 262, 263 (App. Div. 1987); Howard Con-
struction 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 “mer-
chants,” 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 descrip-
tion, 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
No. 03-1208                                                    3

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 distin-
guished 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
4                                                   No. 03-1208

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 exist-
ence of a contract—that it does not negate the contract's
existence—but that can’t be right. The writing must, remem-
ber, 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) (interpret-
ing 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, 468 N.E.2d
811, 814-15 (Ill. App. 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
No. 03-1208                                                   5

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 in-
ternal 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 re-
quired 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., 535 N.E.2d 633, 635 (N.Y.
1989). That would be bootstrapping. But what is obvious,
like what is admitted, UCC § 2-201(3)(b); URSA Farmers
Cooperative Co. v. Trent, 374 N.E.2d 1123, 1125 (Ill. App.
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 no possible uncertainty there is no work for the
statute to do.
  The problem with the invoice is not that it wasn’t signed
by an agent, for it is obvious as we have said that Womack
and Wilson were agents of Consolidation. The absence of a
handwritten signature is not a problem either. Weston v.
Myers, 33 Ill. 424 (1864); Just Pants v. Wagner, 617 N.E.2d 246,
250-51 (Ill. App. 1993); Cloud Corp. v. Hasbro, Inc., 314 F.3d
289, 295-96 (7th Cir. 2002) (interpreting Illinois UCC law);
Barber & Ross Co. v. Lifetime Doors, Inc., 810 F.2d 1276, 1280
6                                                 No. 03-1208

(4th Cir. 1987). But all the invoice shows is that Consolida-
tion prepared an invoice consistent with what it hoped
would be a contract. The invoice was never sent— which, if
anything, is evidence that there was no contract, at least no
contract containing terms consistent with the invoice.
  The invoice loses all possible significance, moreover,
when placed in its documentary context. Beginning in
September 2000, three months before the invoice was
created, and continuing until the end of May of the follow-
ing year, the parties exchanged at least eleven drafts of a
possible contract, with many different terms, though the
quantity remained at or close to 1.5 million tons over two
years. Negotiations collapsed in June when Consolidation,
having encountered production difficulties at its mine, told
CILCO it would contract to sell it only 600,000 tons. (CILCO
regards that statement as a repudiation, and hence breach,
of the oral contract made the previous December.) Against
this background it is apparent that the invoice was wishful
thinking rather than evidence of an oral contract.
  It is true, as CILCO points out, that a binding contract,
oral or otherwise, can come into being before all the details
of the parties’ contractual relationship are worked out.
Quake Construction, Inc. v. American Airlines, Inc., 565 N.E.2d
990, 993-94 (Ill. 1990); Dawson v. General Motors Corp., 977
F.2d 369, 374 (7th Cir. 1992) (Illinois law); E. Allan
Farnsworth, “Precontractual Liability and Preliminary
Agreements: Fair Dealing and Failed Negotiations,” 87
Colum. L. Rev. 217, 253-63 (1987). This is especially likely
when the business relationship is complex and the parties
have come to trust each other through previous dealings
(and there were previous dealings here). It may then be in
the parties’ mutual interest to exchange binding commit-
ments on the essentials of their deal so that they have at
No. 03-1208                                                   7

least a rough idea of where they stand and can make their
plans accordingly, and to commit to negotiate in good faith,
the details of the deal at a later date: in effect to agree to
agree. Duties to bargain in good faith are not empty, as we
know from labor law; and they can be voluntarily assumed
and enforced. But no document indicates that our two
parties agreed, whether in an oral contract made in Decem-
ber 2000 or at any other time, to agree. On the contrary,
CILCO itself—oddly—points to an email from Consolida-
tion in February 2001, two months after the invoice and the
so-called oral contract, in which Consolidation’s salesman
described a draft from CILCO as a great “starting point.”
And in another email, sent the same day between the same
individuals, the salesman said, “OK, let’s try again.”
  The question is not how close the parties were to agree-
ment, but whether there was an agreement. It could, as we
have said, have been an agreement to agree, but no doc-
ument indicates that. The reference to “starting point” could
mean merely the starting point of the process of drafting the
formal written contract confirming an oral contract, but
there is no documentary evidence for this interpretation.
CILCO seems to think that if writings establish price and
quantity, there must be a contract—as if the statute of frauds
displaced the requirement of agreement. Often price +
quantity = contract. When the parties are dealing in stan-
dard goods, what more is needed? But coal comes in many
varieties; size, plus ash and sulfur content, require attention,
as do the adoption and wording of clauses covering taxes,
environmental costs (who bears the costs of new regula-
tions?), delays in shipment, and so on. These items, which
may be more important in the case of coal than base price is,
are what these parties could not agree on.
 In principle, of course, and often in practice, the question
whether the statute of frauds has been satisfied is separable
8                                                 No. 03-1208

from the question whether there was a contract. There could
be an oral contract that, were it not for the statute of frauds,
would be provable by oral testimony; or the statute of
frauds might be satisfied yet a full trial show that really
there was no contract—that the document evidencing it was
contradicted by more persuasive evidence, oral or written.
But in this case the questions have tended to merge, with
the parties in the briefs and at argument frequently sliding
from the question of compliance with the statute of frauds
to the question whether there was a contract. A telling piece
of evidence against the inference that there was, much
emphasized by Consolidation, is the statement by its
salesman at his deposition that in early 2001 (after the
famous invoice) CILCO was still “out looking at alternative
fuels and trying to determine whether or not they could get
coal in there from someone else cheaper” than from Consoli-
dation. CILCO argues that this is not admissible evidence
because how could Consolidation’s salesman know what
CILCO was doing? But that is a poor argument because it’s
the business of a salesman to know what alternatives his
customer is exploring; that is something that is within a
salesman’s personal knowledge, rather than being hearsay.
See Kansas City Power & Light Co. v. Ford Motor Credit Co.,
995 F.2d 1422, 1432 (8th Cir. 1993). CILCO denies that the
salesman’s testimony is accurate but has offered no contrary
evidence (denials in pleadings and briefs are not evidence),
and so it stands uncontradicted for purposes of summary
judgment. It is further evidence that months after the
invoice CILCO did not consider itself bound to any contract
with Consolidation.
                                                    AFFIRMED.
No. 03-1208                                              9

A true Copy:
       Teste:

                       _____________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                USCA-02-C-0072—11-17-03