Finnin v. Bob Lindsay, Inc. ( 2006 )

No. 3-05-0428
filed June 29, 2006.
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 2006
MICHAEL FINNIN, D.J. McPHERSON ) Appeal from the Circuit Court
and DAVID WRIGHT, ) of the 9th Judicial Circuit,
) Knox County, Illinois,
Plaintiffs-Appellants, )
)
v. )
) No. 02-L-74
BOB LINDSAY, INC., d/b/a/ BOB )
LINDSAY HONDA-TOYOTA, and )
ROBERT LINDSAY, JR., )
Individually, ) Honorable
) David L. Vancil,
Defendant-Appellee. ) Judge, Presiding.
_________________________________________________________________
JUSTICE LYTTON delivered the opinion of the court:
_________________________________________________________________
Plaintiffs Michael Finnin, D.J. McPherson and David Wright filed a breach of contract
complaint against defendant Robert Lindsay, Jr., d/b/a Bob Lindsay Honda-Toyota
(dealership), claiming that Lindsay failed to honor a written agreement to sell the dealership
to plaintiffs. Both parties moved for summary judgment. The trial court found that plaintiffs=
modifications to defendant=s offer constituted a counteroffer which defendant did not
accept. The court granted summary judgment in Lindsay=s favor. We affirm. InMarch
of 2002, plaintiffs, Michael Finnin, D.J. McPherson and David Wright, approached
defendant, Bob Lindsay, about selling his Honda-Toyota dealership. Negotiations
continued over the next few months, and the agreement was eventually reduced to writing.
Both parties then made several suggestions, modifications, and counter-proposals to the
draft.
On August 13, 2002, a few final changes to the agreement were discussed between
counsel for both parties. On August 13 or 14, defense counsel=s legal assistant sent a
letter to plaintiffs= attorney. Enclosed was a revised agreement for the sale of the
dealership=s stock which reflected the necessary changes. The copy was signed by
Lindsay and contained all the corrections previously discussed.
Upon receipt of the agreement, plaintiffs= attorney noticed two errors which did not
conform to the parties= intent. The parties previously agreed that plaintiffs would pay $1.1
million for the stock. The purchase price provision of the agreement stated the correct
amount. However, exhibit A to the agreement still stated that the purchase price was
$700,000. Second, the agreement made reference to another agreement for the sale of
goodwill between the parties that had since been incorporated into the agreement for the
sale of stock.
Plaintiffs= attorney contacted defendant=s attorneys, and they discussed the errors.
On August 19, 2002, Lindsay=s attorney wrote to plaintiffs= counsel, suggesting that
plaintiffs= attorney send the draft back and he would send plaintiffs a corrected version of
the agreement. Plaintiffs= counsel did not return the contract.
On the morning of August 22, Lindsay telephoned Finnin and informed him that he
had received another offer from a third party. During the conversation, Lindsay told Finnin
that he intended to sell the car dealership to the interested party. Finnin stated that he did
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not want to "stand in [Lindsay=s] way" but wanted to contact his partners before he made a
decision. Finnin telephoned McPherson and Wright to inform them of the situation. Finnin
also spoke with plaintiffs= attorney who recommended that the three partners sign the
agreement and return it. Finnin called Lindsay and told him that plaintiffs intended to go
through with the deal. That same day, plaintiffs= attorney made the previously
discussed changes to the written agreement by striking out the incorrect purchase price
and inserting the correct amount in "Exhibit A" and by removing all references to the
"agreement for the sale of goodwill" on page 14. Plaintiffs then initialed the corrections,
signed the agreement, and returned the contract to Lindsay=s attorney. Lindsay refused to
sell the dealership to plaintiffs.
Plaintiffs filed a breach of contract complaint. During his deposition, defendant=s
attorney stated that the changes were "minor" and "basically corrected the written
agreement to conform with the intent of the parties."
At the summary judgment hearing, Lindsay argued that no contract was ever formed
between the parties because the plaintiffs made "material" modifications to the offer.
Plaintiffs claimed that the modifications were not significant or material changes to the
agreement, but rather corrections of clerical mistakes. Since the changes were consistent
with the parties= intent, plaintiffs argued that a contract had been formed. In the alternative,
plaintiffs claimed that the strict compliance rule should not be applied because the Uniform
Commercial Code (UCC) (810 ILCS 5/2-101 et seq. (West 2002)) applied to the
agreement. The trial court held that the agreement signed by Lindsay was an offer and that
plaintiffs= corrections constituted a counteroffer. The court granted summary judgment in
favor of Lindsay.
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ANALYSIS
I. Strict Compliance
On appeal, plaintiffs claim that the trial court erred in granting summary judgment in
favor of Lindsay. Plaintiffs maintain that the modifications made after Lindsay signed the
agreement were simply corrections to errors in the writing and did not change the terms
agreed to by the parties; thus, a valid contract was formed.
It is well settled that in order to constitute a contract by offer and acceptance, the
acceptance must conform exactly to the offer. Whitelaw v. Brady, 3 Ill. 2d 583 (1954); see
also Magee v. Garreau, 332 Ill. App. 3d 1070 (2002), appeal denied 202 Ill. 2d 613. Under
Illinois contract law, an acceptance requiring any modification or change in terms
constitutes a rejection of the original offer and becomes a counteroffer that must be
accepted by the original offeror before a valid contract is formed. Venture Associates Corp.
v. Zenith Data Systems Corp., 987 F.2d 429 (1993); see also Milani v. Proesel, 15 Ill. 2d
423 (1959); Whitelaw, 3 Ill. 2d 583; Worley v. Holding Corp., 348 Ill. 420 (1932).
In the seminal case of Whitelaw v. Brady, our supreme court held that any changes
to an offer, even minor changes, constitute a counteroffer rather than an acceptance. In
1950, decedent Ramm owned an apartment building. Shortly before his death he made an
offer to Whitelaw to purchase the property. After consideration, Whitelaw decided to accept
the offer. He typed in the date for performance in the blank provided by Ramm and typed
in the date of acceptance as "12/26/51." Ramm died that same day. Whitelaw later
changed the acceptance date to "12/26/50" to correspond to the actual date he signed the
offer. The supreme court held that a valid contract had not been created because the
acceptance did not conform unequivocally to Ramm=s offer. Whitelaw, 3 Ill. 2d 583.
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Illinois= strict compliance rule of law was recently noted and applied by the Seventh
Circuit in Venture Associates Corp. v. Zenith Data Systems, Corp. In that case, plaintiff
and defendant were attempting to negotiate the sale of defendant=s subsidiary company.
The parties exchanged several drafts of a proposed agreement. After months of
negotiations, the plaintiff returned a proposed purchase agreement "with minor, non-
substantive changes on it in writing." The defendant seller eventually refused to proceed,
and the sale was never completed. The plaintiff filed suit in federal court, alleging that the
parties had entered into a binding agreement when it returned the agreement with only
minor changes. The district court granted defendant=s motion to dismiss. Venture
Associates Corp., 987 F.2d 429.
On appeal, the Seventh Circuit held that the plaintiff=s conduct did not create a
binding contract between the parties. The court concluded:
"Because Illinois law demands that an acceptance comply strictly with the
terms of the offer (citations omitted), [Plaintiff=s] modifications of [defendant=s]
proposed agreement, however minor, precluded formation of a contract at
that point. Indeed, [plaintiff=s] changes created a counteroffer which
[defendant] never accepted."
Venture Associates Corp., 987 F.2d at 432.
Here, plaintiffs argue that they made only non-substantive, typographical
modifications to the proposed agreement for the sale of stock. We agree that plaintiffs=
changes were minor and that they apparently conformed to the agreement of the parties.
Nevertheless, Illinois case law clearly mandates that any modification, however slight,
prevents the creation of a valid contract. Plaintiffs attempt to correct or modify the terms of
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the agreement formed a counteroffer that Lindsay refused to accept.
We recognize that many courts in other jurisdictions disagree with our disposition.
See 17 Am. Jur. 2d Contracts '87, at 112 (1964). Other states have found that immaterial
or minor differences or variances between the offer and acceptance do not prevent the
formation of a contract. Those courts have concluded that a modification of an offer
constitutes a counteroffer only if the modification is a material one. See Hollywood Fantasy
Corp. v. Gabor, 151 F.3d 203 (5th Cir. 1998) (applying Texas law); State Department of
Transportation v. Providence & Worcester R. Co., 674 A.2d 1239 (R.I. 1996); Wallerius v.
Hare, 200 Kan. 578, 438 P.2d 65 (1968); Richardson v. Greensboro Warehouse & Storage
Co., 223 N.C. 344, 26 S.E.2d 897 (1943); and Foster v. West Publishing Co., 77 Okla. 114,
186 P. 1083 (1920). Although the material modification analysis may be more appropriately
applied to the facts of this case, Illinois has yet to adopt that rule.
Plaintiffs argue that the rule of strict compliance is not meant to allow contracting
parties to escape their obligations under the contract due to a mistake by the parties. In
support of their position, plaintiffs cite Farley v. Roosevelt Memorial Hospital, 67 Ill. App. 3d
700 (1978).
In Farley, the parties entered into an option agreement which granted the buyer the
right to exercise an option to purchase real estate. The buyer later executed the option by
signing a different real estate contract form which did not conform to the contract form
attached to the option agreement. Defendant refused to honor the sale, informing the
purchaser that the option had not been validly exercised due to the incorrect form. In
construing the terms of the option agreement, the appellate court stated that the option
agreement required only that the purchaser provide a timely option notice to the seller. The
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court found that the terms of the agreement did not require the purchaser to include with
the notice a signed copy of the real estate agreement. The court concluded that "[w]hile
the established rule is that where an option is granted, the exercise must in every respect
meet and correspond with the offer, that rule should not be so inflexibly applied that it
cannot accommodate an acceptance which mirrors the offer, but where a ministerial
procedure was not carried out because of the mistake of one of the parties." Farley, 67 Ill.
App. 3d at 705. Therefore, the purchaser properly exercised the option to purchase the
property. Farley, 67 Ill. App. 3d 700.
Here, whether a valid agreement exists between the parties is still in dispute. Unlike
the court in Farley, we are not operating under a valid contract and trying to determine if the
parties= actions conformed with the contractual requirements to which they agreed.
Plaintiffs made, albeit slight, changes to Lindsay=s offer. Even assuming these changes
were agreed to by the parties, the acceptance did not correspond with the offer in every
aspect as required under Illinois law. Plaintiffs= corrections constituted a rejection of the
initial offer and a simultaneous counteroffer. See D=Agostino, 205 Ill. App. 3d 898. As
previously determined, a valid agreement was not created. Therefore, the trial court
properly granted summary judgment in favor of Lindsay.
II. Uniform Commercial Code (UCC)
In the alterative, plaintiffs argue that the trial court erred in concluding that the
agreement is not controlled by the UCC. Plaintiffs claim that the sale of shares of stock in a
corporation is governed by the UCC; under the UCC, an acceptance need not strictly
comply with an offer to form a valid contract.
Article 2 of the UCC governs the sale of goods between merchants. Section 104 of
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the UCC defines "merchants" as "a person who deals in goods of the kind." 810 ILCS 5/2-
104 (West 2002). Section 2-105 defines "goods" as "all things, including specially
manufactured goods, which are movable at the time of identification in a contract for sale
other than the money in which the price is to be paid, investment securities (Article 8) and
things in action." 810 ILCS 5/2-105(1) (West 2002). Investment securities are excluded
from the definition of goods, unless such application is "sensible and the situation involved
is not covered by [Article 8]." 810 ILCS 5/2-105(1) (comment 1) (West 2002).
Plaintiffs and defendant are not merchants as defined by the UCC, and investment
securities are expressly excluded from the definition of goods unless it is sensible to define
them as such. In this case, the sale of the stock of Lindsay=s closely held corporation doing
business as a car dealership was a one time complex transaction. The application of the
UCC was intended to encourage the continuous transaction of goods that occur on a daily
basis in the marketplace. See 810 ILCS 5/2-207 (West 2002) (battle of the forms
provision). It is not sensible, nor is it necessary, to apply those rules to the lengthy,
ongoing negotiations that occurred here. See Kottis v. Cerilli, 612 A.2d 661 (R.I. 1992).
CONCLUSION
The judgment of the circuit court of Knox County is affirmed.
Affirmed.
SCHMIDT, PJ., and O'BRIEN, J., concurring.
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