Court Opinion

ID: 9478483
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:50:07.754067+00
Date Added: 2024-06-11T17:46:27.108365
License: Public Domain

WILL, Senior District Judge,
dissenting.
While I agree with much of the majority opinion, I do not agree that the case in the words of the majority opinion “must be remanded for a determination whether there was not only a practice of direct payment from the finance company to the manufacturer but an obligation to make such payments.” With all due respect, Judge Lee has already done just that. In his opinion he said:
In this court’s view, the stipulations differentiate the facts in this case from those presented in either Virginia Block or Inland Steel, even apart from the fact that in this case the court is not dealing with debts of subsidiary corporations. Here, unlike in In re Virginia Block, the practice was not “occasional” or “sporadic at best” nor was the arrangement here superceded by a “written blanket” agreement as it was in Inland Steel. Rather, the evidence in the record and the parties’ stipulation clearly shows that there was a mutuality of obligations between Green Tree and Elcona and vice versa because it was both the industry practice and the practices between the parties for the lender (Green Tree) to pay the manufacturer (Elcona) directly the amount due the manufacturer from the dealer. That being the case, Green Tree was entitled to setoff the debt owed it by Elcona.
District Court Opinion at 9-10 (emphasis added).
I am not clear what more the majority would have him say. The majority opinion suggests that a “practice may be evidence of an obligation ... but it is not the equivalent of it.” In this connection, it asserts that the acceptance by a landlord of a late payment from a tenant does not modify the lease. But the cases are legion holding that a landlord who regularly accepts late payments from a tenant cannot thereafter claim that a subsequent late payment constitutes a breach of the lease. American National Bank & Trust Company v. Dominick, 154 Ill.App.3d 275, 107 Ill.Dec. 599, 507 N.E.2d 512, 515-16 (1987); Vogel v. Dawdy, 107 Ill.2d 68, 89 Ill.Dec. 836, 840, 481 N.E.2d 679, 683 (1985) (“waiver is applied in ‘late payment’ cases ... to avoid a vendor’s being able to lull a vendee into not meeting contract terms and then claiming such noncompliance as a breach of the contract.”); National Distillers v. First National Bank, 804 F.2d 978, 980 (7th Cir.1986) (citing Vogel), Falk v. Allen, 739 F.2d 461, 463 (9th Cir.1984) (interpreting California law); In re Ferris, 415 F.Supp. 33, 38 (W.D.Okl.1976).
The general rule is that if a party to a contract performs acts that recognize the contract as still subsisting, such as accepting rent payments, specific performance of the terms of the contract is waived and there can be no forfeiture _ This rule is founded on principles of common honesty: a landlord cannot take the position [that] a lease is *489valid for one purpose, e.g., collection of rent, and yet declare it invalid for other purposes.
Page Two, Inc. v. P.C. Management, Inc., 517 N.E.2d 103, 106 n. 1 (Ind.App.Ct. 2d Dist.1987) (citations omitted).
The majority cites Matter of Xonics Imaging Inc., 837 F.2d 763, 767 (7th Cir.1988) for the proposition that parties should not be discouraged from exercising forebearance for fear that their action will modify a contractual obligation. While this is one policy consideration, it by no means negates the contrary policy consideration, adopted in the cases cited above and many others, that one may reasonably act in reliance on another’s repeated forebearance as effectively modifying even a written contractual obligation. The line is drawn based on the nature of the obligation and the nature and frequency of the forebearance. Certainly, Matter of Xonics Imaging Inc. can not be understood as overruling the large and established body of law regarding waivers and forbearance. Accordingly, with all due respect, the policy consideration referred to in Matter of Xon-ics Imaging Inc. is not dispositive of this case.
Moreover, we deal here not with the modification of a written contract such as a lease, but with whether, absent a written contract, a uniform practice followed both in the industry and by the parties can create a mutual obligation, as Judge Lee found it had in this case. Again, there is substantial precedent that it can.
The very section of the Uniform Commercial Code cited by the majority provides in relevant part:
(1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
(2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.
(3)A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.
U.C.C. § 1-205. See, e.g., McGhan v. Ebersol, 608 F.Supp. 277, 285 (S.D.N.Y.1985) (misapproportion of ideas case: “An implied-in-fact contract may be based upon industry custom or usage regarding submission and use of ideas.”); Marwil v. Baker, 499 F.Supp. 560, 573 (E.D.Mich.1980) (an employee’s contractual rights can be based on rules, customs and policy statements of the employer: “[Rjules and customs may create binding contractual obligations.”). In addition, evidence of a trade custom may be used to determine how damages should be calculated. Hams Express, Inc. v. Joseph Land & Co., Inc., 506 F.Supp. 209, 214 (E.D.Pa.1980) (trade practice determines compensation for a consignee or shipper due to carrier’s negligence); Havenfield Corporation v. H & R Block, Inc., 509 F.2d 1263, 1270-71 (8th Cir.1975).
An implied-in-fact contract is a true contract, containing all necessary elements of a binding agreement; it differs from other contracts only in that it has not been committed to writing or stated orally in express terms, but rather is inferred from the conduct of the parties in the milieu in which they dealt.
Bloomgarden v. Coyer, 479 F.2d 201, 208 (D.C.Cir.1973) (footnote omitted; emphasis added), cited with approval in Lirtzman v. Fuqua Indus., Inc., 677 F.2d 548, 551-52 (7th Cir.1982), and Overseas Development Disc Corp. v. Sangamo Constr. Co. Inc., 840 F.2d 1319, 1330 (7th Cir.1988). Here all parties were active members of the same general industry — mobile homes— and all parties agree that there was both an industry custom and a regular course of dealing among the parties themselves. The parties’ conduct, in conformity with the industry custom and their regular course of dealing, established an implied-in-fact contract that the lender (Green Tree) would pay the manufacturer (Elcona) directly.
*490The majority cites In re Virginia Block Co., 16 B.R. 560, 562 (Bankr.W.D.Va.1981) in support of its conclusion that a practice does not equal or create an obligation. Like Judge Lee, we have no disagreement with the result in Virginia Block, given the facts of that case. Virginia Block, the debtor, was a company which conducted several transactions with four defendants: corporate defendants Bushong Realty and Pulaski Motor Co., Inc. which were wholly owned by individual defendants Charles Bushong and Miller Bushong. 16 B.R. at 561. Virginia Block maintained separate records of its transactions with each defendant. However, “a practice of offsetting mutual accounts receivable” continued among the parties until Virginia Block filed for bankruptcy. Ibid. Although the bankruptcy court opinion does not expressly say so, it appears that the attempted offsetting of mutual accounts receivable related to the accounts receivable on the four defendants’ records, as a whole, against the aggregate accounts receivable on Virginia Block’s records with respect to all four defendants. This practice was not embodied in a written contract but, instead, developed as a result of the friendship between the Bushongs and Virginia Block’s vice president. Ibid.
After Virginia Block filed for bankruptcy, the four defendants apparently attempted to set off their aggregate accounts receivable from the bankrupt against the aggregate debts owed to the bankrupt. The bankruptcy court denied the defendants’ claimed combined set off on the grounds that each defendant was a separate entity.
[I]t is clear in this proceeding that the debts are not mutual debts within the meaning of § 553. Even though the parties continued a friendly working relationship over their years of association, their practice of disposing of the accounts at one meeting does not transform the individual accounts into the account of a single entity. Each debt was incurred by the respective customer in his or its own right. Virginia Block maintained separate accounting of the amounts due in the name of the customer. Likewise, a claim held by the customer, namely the claim of Pulaski Motor Co., Inc., is a claim of that individual entity alone.
Id. at 562. Because the defendants sought a “triangular tradeoff,” the bankruptcy court denied their claim. Ibid. The court did not, however, deny each defendant the right to set off his or its debt against Virginia Block’s claim. It simply denied lumping them all together.
Contrary to the majority opinion, Virginia Block does not stand for the proposition that a regular practice cannot create an obligation. The issue in Virginia Block was not whether an obligation was created by virtue of the parties’ practice. Instead, the issue was whether the parties’ practice of “comingling” their accounts receivable at periodic settlement meetings transformed the four defendants into one legal entity for the purpose of set offs. The bankruptcy court in Virginia Block correctly noted that the law distinguishes between partnerships and individual partners and between corporations, their shareholders and their subsidiaries. 16 B.R. at 562, citing 4 Collier on Bankruptcy 11553.04[4] at 553-31 (15th ed. 1980) and Inland Steel Co. v. Berger Steel Co., Inc., 327 F.2d 401, 403-04 (7th Cir.1964). The defendants in Virginia Block attempted to bypass this distinction.
In contrast, the facts in our case do not raise the issue of distinguishing between related companies or individuals and partnerships. There is no suggestion that Mon-ro and Green Tree are related companies. Moreover, they regularly and frequently transacted business in conformity with an industry custom and established course of dealings. The question here is whether that conduct created an implied-in-fact contract and, therefore, an obligation. I agree with Judge Lee that it did.
Conduct generally observed by members of a trade binds both parties because each is justified in assuming that the trade practice will be observed unless the other party indicates otherwise.
A party is always held to conduct generally observed by members of his chosen *491trade because the other party is justified in so assuming unless he indicates otherwise. He is held to more general business practices to the extent of his actual knowledge of those practices or to the degree his ignorance of those practices is not excusable: they were so generally practiced he should have been aware of them.
Nanukuli Paving & Rock Co. v. Shell Oil Co., Inc., 664 F.2d 772, 791 (9th Cir.1981). See also Gord Indus. Plastics, Inc. v. Aubrey Mfg., Inc., 127 Ill.App.3d 589, 82 Ill.Dec. 855, 858, 469 N.E.2d 389, 392 (1984) (“... parties may be charged with knowledge of any usage or custom in the trade ‘of which they are or should be aware.’ ”) (citations omitted); Georgia Vegetable Co., Inc. v. Relan, 731 F.2d 798, 804 (11th Cir.1984) (“[UJsage of the trade becomes an implied term of any contract in the particular trade, ... ”).
As the majority opinion almost recognizes, Elcona could have sued Green Tree if, contrary to the established practice, the latter had paid Monro and Monro had failed to pay Green Tree. As the cases cited demonstrate, the courts have recognized that, absent a written contract, binding mutual obligations, an implied-in-fact contract, can be created by established and regularly followed industry practices. It seems to me clear, as Judge Lee has already found, that such mutual obligations were created here.
Since the facts as stipulated by the parties and found by Judge Lee support his legal conclusion that there was an obligation on Green Tree’s part to remit directly to Elcona, his ultimate conclusion that there were mutual debts under 11 U.S.C. § 553(a) was correct. Accordingly, I would affirm his decision rather than remanding for him to adumbrate in greater detail the conclusion he has already correctly reached.