NO. 4-07-0061 Filed 2/26/08
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
GENE JANNUSCH and MARTHA JANNUSCH, ) Appeal from Plaintiffs-Appellants, ) Circuit Court of v. ) McLean County LINDSEY NAFFZIGER and LOUANN ) No. 05L198 NAFFZIGER, ) Defendants-Appellees. ) Honorable ) Charles G. Reynard, ) Judge Presiding. _________________________________________________________________
JUSTICE COOK delivered the opinion of the court:
Plaintiffs, Gene Jannusch and his wife, Martha, brought
this action for breach of an oral contract against defendants,
Lindsey Naffziger and her mother, Louann Naffziger. Following a
bench trial, the trial court found in favor of defendants.
Plaintiffs appeal. We reverse and remand with directions.
I. BACKGROUND
Plaintiffs operated a business, Festival Foods, which
served concessions to the general public at festivals and events
throughout Illinois and Indiana from late April to late October
each year. The assets of the business included a truck and
servicing trailer and equipment such as refrigerators and freez-
ers, roasters, chairs and tables, fountain service and signs and
lighting equipment.
Defendants were interested in purchasing the concession
business, met several times with plaintiffs, and observed the business in operation. Gene testified that on August 13, 2005,
plaintiffs entered into an oral agreement to sell Festival Foods
to defendants for $150,000. For the $150,000, defendants would
receive the truck and trailer, all necessary equipment, and the
opportunity to work at event locations secured by plaintiffs.
Defendants paid $10,000 immediately, with the balance to be paid
when defendants received their loan money from the bank. Defen-
dants took possession of Festival Foods the next day and operated
Festival Foods for the remainder of the 2005 season. Gene
acknowledged that the insurance and titles to the truck and
trailer remained in his name because he had not yet received the
purchase price from defendants.
Louann acknowledged testifying during a deposition that
an oral agreement to purchase Festival Foods for $150,000 existed
but later testified she could not recall specifically making an
oral agreement on any particular date. Lindsey testified she and
Louann met with plaintiffs on August 13, 2005, and paid the
$10,000 for the right to continue to purchase the business
because plaintiffs had another interested buyer. She also stated
that the parties agreed defendants would run Festival Foods as
they pursued buying the business. According to Lindsey, Gene
suggested the parties sign something and she replied that defen-
dants were "in no position to sign anything" because they had not
received any loan money from the bank and did not have an attor-
- 2 - ney. The following week, Lindsey consulted with an attorney
regarding the legal aspects of buying and owning a business. She
asked the attorney to prepare a contract for the purchase.
Ultimately, the bank approved defendants for a loan. Lindsey
admitted taking possession of Festival Foods, receiving the
income from the business, purchasing inventory, replacing equip-
ment, paying taxes on the business and paying employees.
Defendants operated six events, three in Indiana and
three in Illinois. Gene attended the first two festivals in
Valparaiso and Auburn, Indiana, with defendants, who paid him $10
an hour and paid for his lodging. Gene and Louann testified that
plaintiffs' minimal involvement with the operations after August
13 was merely as advisors to defendants, who were unfamiliar with
this type of business. Two days after the business season ended,
defendants returned Festival Foods to the storage facility where
it had been stored by Gene. Gene testified he had canceled his
lease with the storage facility, telling the owner that he had
sold his business. Someone at the storage facility called Gene
and reported that Festival Foods had been returned. Thereafter
Gene attempted to sell Festival Foods, but was unsuccessful.
Lindsey testified one of the reasons defendants returned Festival
Foods was because the income from the events they operated was
lower than expected. She stated Gene specifically asked defen-
dants to run certain events for him and he ran the events where
- 3 - he was present. She testified Gene asked for the trailer back,
stating he needed it "so he could make money on it for the end of
the year," and that Gene stated he did not have money to buy back
the inventory.
The trial court first held that the Uniform Commercial
Code (UCC) (810 ILCS 5/1-101 et seq. (West 2004)) governed the
issues raised in this case, rejecting defendants' argument that a
sale of goods was not involved. The trial court then found that
there was a contract formed but that the evidence was insuffi-
cient to establish by a preponderance of the evidence that there
was a meeting of the minds as to what that agreement was. "If
this is an agreement to reach an agreement, I suspect that the
action for the price must fail."
II. ANALYSIS
Where there are no questions as to the facts essential
to a purported contract, the existence of the contract is a
question of law. Magee v. Garreau, 332 Ill. App. 3d 1070, 1076,
774 N.E.2d 441, 446 (2002). In general, the construction or
interpretation of a contract is a matter to be determined by the
court as a question of law. Avery v. State Farm Mutual Automo-
bile Insurance Co., 216 Ill. 2d 100, 129, 835 N.E.2d 801, 821
(2005).
A. Application of UCC
Defendants argue the UCC should not apply because this
- 4 - case involves the sale of a business rather than just the sale of
goods. The "predominant purpose" test is used to determine
whether a contract for both the sale of goods and the rendition
of services falls within the scope of article 2 of the UCC. 810
ILCS 5/2-101 through 2-725 (West 2004). A contract that is
primarily for services, with the sale of goods being incidental,
will not fall within the scope of article 2. Belleville Toyota,
Inc. v. Toyota Motor Sales, U.S.A., Inc., 199 Ill. 2d 325, 352-
53, 770 N.E.2d 177, 194-95 (2002). "[W]hether the contract was
predominantly for goods or services is generally a question of
fact." Heuerman v. B&M Construction, Inc., 358 Ill. App. 3d
1157, 1165, 833 N.E.2d 382, 389 (2005). Certainly significant
tangible assets were involved in this case. Cf. Fink v.
DeClassis, 745 F. Supp. 509, 516 (N.D. Ill. 1990) (intangible
assets accounted for $1 million of the total purchase price of
$1.2 million). The evidence presented in this case was suffi-
cient to support the conclusion that the proposed agreement was
predominantly one for the sale of goods.
B. Statute of Frauds
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NO. 4-07-0061 Filed 2/26/08
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
GENE JANNUSCH and MARTHA JANNUSCH, ) Appeal from Plaintiffs-Appellants, ) Circuit Court of v. ) McLean County LINDSEY NAFFZIGER and LOUANN ) No. 05L198 NAFFZIGER, ) Defendants-Appellees. ) Honorable ) Charles G. Reynard, ) Judge Presiding. _________________________________________________________________
JUSTICE COOK delivered the opinion of the court:
Plaintiffs, Gene Jannusch and his wife, Martha, brought
this action for breach of an oral contract against defendants,
Lindsey Naffziger and her mother, Louann Naffziger. Following a
bench trial, the trial court found in favor of defendants.
Plaintiffs appeal. We reverse and remand with directions.
I. BACKGROUND
Plaintiffs operated a business, Festival Foods, which
served concessions to the general public at festivals and events
throughout Illinois and Indiana from late April to late October
each year. The assets of the business included a truck and
servicing trailer and equipment such as refrigerators and freez-
ers, roasters, chairs and tables, fountain service and signs and
lighting equipment.
Defendants were interested in purchasing the concession
business, met several times with plaintiffs, and observed the business in operation. Gene testified that on August 13, 2005,
plaintiffs entered into an oral agreement to sell Festival Foods
to defendants for $150,000. For the $150,000, defendants would
receive the truck and trailer, all necessary equipment, and the
opportunity to work at event locations secured by plaintiffs.
Defendants paid $10,000 immediately, with the balance to be paid
when defendants received their loan money from the bank. Defen-
dants took possession of Festival Foods the next day and operated
Festival Foods for the remainder of the 2005 season. Gene
acknowledged that the insurance and titles to the truck and
trailer remained in his name because he had not yet received the
purchase price from defendants.
Louann acknowledged testifying during a deposition that
an oral agreement to purchase Festival Foods for $150,000 existed
but later testified she could not recall specifically making an
oral agreement on any particular date. Lindsey testified she and
Louann met with plaintiffs on August 13, 2005, and paid the
$10,000 for the right to continue to purchase the business
because plaintiffs had another interested buyer. She also stated
that the parties agreed defendants would run Festival Foods as
they pursued buying the business. According to Lindsey, Gene
suggested the parties sign something and she replied that defen-
dants were "in no position to sign anything" because they had not
received any loan money from the bank and did not have an attor-
- 2 - ney. The following week, Lindsey consulted with an attorney
regarding the legal aspects of buying and owning a business. She
asked the attorney to prepare a contract for the purchase.
Ultimately, the bank approved defendants for a loan. Lindsey
admitted taking possession of Festival Foods, receiving the
income from the business, purchasing inventory, replacing equip-
ment, paying taxes on the business and paying employees.
Defendants operated six events, three in Indiana and
three in Illinois. Gene attended the first two festivals in
Valparaiso and Auburn, Indiana, with defendants, who paid him $10
an hour and paid for his lodging. Gene and Louann testified that
plaintiffs' minimal involvement with the operations after August
13 was merely as advisors to defendants, who were unfamiliar with
this type of business. Two days after the business season ended,
defendants returned Festival Foods to the storage facility where
it had been stored by Gene. Gene testified he had canceled his
lease with the storage facility, telling the owner that he had
sold his business. Someone at the storage facility called Gene
and reported that Festival Foods had been returned. Thereafter
Gene attempted to sell Festival Foods, but was unsuccessful.
Lindsey testified one of the reasons defendants returned Festival
Foods was because the income from the events they operated was
lower than expected. She stated Gene specifically asked defen-
dants to run certain events for him and he ran the events where
- 3 - he was present. She testified Gene asked for the trailer back,
stating he needed it "so he could make money on it for the end of
the year," and that Gene stated he did not have money to buy back
the inventory.
The trial court first held that the Uniform Commercial
Code (UCC) (810 ILCS 5/1-101 et seq. (West 2004)) governed the
issues raised in this case, rejecting defendants' argument that a
sale of goods was not involved. The trial court then found that
there was a contract formed but that the evidence was insuffi-
cient to establish by a preponderance of the evidence that there
was a meeting of the minds as to what that agreement was. "If
this is an agreement to reach an agreement, I suspect that the
action for the price must fail."
II. ANALYSIS
Where there are no questions as to the facts essential
to a purported contract, the existence of the contract is a
question of law. Magee v. Garreau, 332 Ill. App. 3d 1070, 1076,
774 N.E.2d 441, 446 (2002). In general, the construction or
interpretation of a contract is a matter to be determined by the
court as a question of law. Avery v. State Farm Mutual Automo-
bile Insurance Co., 216 Ill. 2d 100, 129, 835 N.E.2d 801, 821
(2005).
A. Application of UCC
Defendants argue the UCC should not apply because this
- 4 - case involves the sale of a business rather than just the sale of
goods. The "predominant purpose" test is used to determine
whether a contract for both the sale of goods and the rendition
of services falls within the scope of article 2 of the UCC. 810
ILCS 5/2-101 through 2-725 (West 2004). A contract that is
primarily for services, with the sale of goods being incidental,
will not fall within the scope of article 2. Belleville Toyota,
Inc. v. Toyota Motor Sales, U.S.A., Inc., 199 Ill. 2d 325, 352-
53, 770 N.E.2d 177, 194-95 (2002). "[W]hether the contract was
predominantly for goods or services is generally a question of
fact." Heuerman v. B&M Construction, Inc., 358 Ill. App. 3d
1157, 1165, 833 N.E.2d 382, 389 (2005). Certainly significant
tangible assets were involved in this case. Cf. Fink v.
DeClassis, 745 F. Supp. 509, 516 (N.D. Ill. 1990) (intangible
assets accounted for $1 million of the total purchase price of
$1.2 million). The evidence presented in this case was suffi-
cient to support the conclusion that the proposed agreement was
predominantly one for the sale of goods.
B. Statute of Frauds
The UCC requires that contracts for the sale of goods
in excess of $500 be in writing. 810 ILCS 5/2-201(1) (West
2004). However, a contract is enforceable even though it does
not meet the requirements of subsection (1) if it is valid in
other respects and "the party against whom enforcement is sought
- 5 - admits in his pleading, testimony[,] or otherwise in court that a
contract for sale was made." 810 ILCS 5/2-201(3)(b) (West 2004).
Also, an oral contract for the sale of goods which has been
partially performed is enforceable. Hartbarger v. SCA Services,
Inc., 200 Ill. App. 3d 1000, 1017, 558 N.E.2d 596, 606-07 (1990);
see 810 ILCS 5/2-201(3)(c) (West 2004) (an oral contract is
enforceable "with respect to goods for which payment has been
made and accepted or which have been received and accepted").
C. Formation of Contract
Under the UCC:
"(1) A contract for sale of goods may be
made in any manner sufficient to show agree-
ment, including conduct by both parties which
recognizes the existence of such a contract.
(2) An agreement sufficient to constitute
a contract for sale may be found even though
the moment of its making is undetermined.
(3) Even though one or more terms are
left open a contract for sale does not fail
for indefiniteness if the parties have in-
tended to make a contract and there is a
reasonably certain basis for giving an appro-
priate remedy." 810 ILCS 5/2-204 (West 2004).
Defendants argue that nothing was said in the contract
- 6 - about allocating a price for good will, a covenant not to com-
pete, allocating a price for the equipment, how to release liens,
what would happen if there was no loan approval, and other
issues. Defendants argue these are essential terms for the sale
of a business and the Internal Revenue Service requires that
parties allocate the sales price. "None of these items were even
discussed much less agreed to. There is not an enforceable
agreement when there are so many essential terms missing."
"A contract may be enforced even though some contract
terms may be missing or left to be agreed upon, but if the
essential terms are so uncertain that there is no basis for
deciding whether the agreement has been kept or broken, there is
no contract." Academy Chicago Publishers v. Cheever, 144 Ill. 2d
24, 30, 578 N.E.2d 981, 984 (1991). In Cheever, the widow of
John Cheever signed an agreement to publish a collection of
Cheever's short stories. Cheever, 144 Ill. 2d at 27, 578 N.E.2d
at 982. The Illinois Supreme Court held there was no valid and
enforceable contract because there was no agreement as to the
length and content of the book, who would decide which stories to
include, the criteria used by the publisher in determining
whether the manuscript was "satisfactory," or other terms.
Cheever, 144 Ill. 2d at 29-30, 578 N.E.2d at 984. "[I]n fact,
all they had really agreed to was a tentative title (The Uncol-
lected Stories of John Cheever)." Dawson v. General Motors
- 7 - Corp., 977 F.2d 369, 373 (7th Cir. 1992).
The essential terms were agreed upon in this case. The
purchase price was $150,000, and the items to be transferred were
specified. No essential terms remained to be agreed upon; the
only action remaining was the performance of the contract.
Defendants took possession of the items to be transferred and
used them as their own. "Rejection of goods must be within a
reasonable time after their delivery or tender. It is ineffec-
tive unless the buyer seasonably notifies the seller." 810 ILCS
5/2-602(1) (West 2004). Defendants paid $10,000 of the purchase
price. The fact that defendants were disappointed in the income
from the events they operated is not inconsistent with the
existence of a contract.
The trial court noted that "the parties have very very
different views about what transpired in the course of the
contract[-]formation discussions." It is not necessary that the
parties share a subjective understanding as to the terms of the
contract; the parties' conduct may indicate an agreement to the
terms. Steinberg v. Chicago Medical School, 69 Ill. 2d 320, 330-
31, 371 N.E.2d 634, 640 (1977). The conduct in this case is
clear. Parties discussing the sale of goods do not transfer
those goods and allow them to be retained for a substantial
period before reaching agreement. Defendants replaced equipment,
reported income, paid taxes, and paid Gene for his time and
- 8 - expenses, all of which is inconsistent with the idea that defen-
dants were only "pursuing buying the business." An agreement to
make an agreement is not an agreement, but there was clearly more
than that here.
The trial court believed it was significant that
Lindsey told Gene that defendants were "in no position to sign
anything" because they had not received any loan money from the
bank and did not have any attorney. "The fact that a formal
written document is anticipated does not preclude enforcement of
a specific preliminary promise." Dawson, 977 F.2d at 374 (1992).
Defendants' loan was eventually approved, they did consult with
an attorney, and defendants remained in possession of and contin-
ued to operate Festival Foods. The parties' agreement could have
been fleshed out with additional terms, but the essential terms
were agreed upon. Louann admitted there was an agreement to
purchase Festival Foods for $150,000 but could not recall specif-
ically making an oral agreement on any particular date. "An
agreement sufficient to constitute a contract for sale may be
found even though the moment of its making is undetermined." 810
ILCS 5/2-204(2) (West 2004). Returning the goods at the end of
the season was not a rejection of plaintiffs' offer to sell, it
was a breach of contract.
III. CONCLUSION
We conclude there was an agreement to sell Festival
- 9 - Foods for the price of $150,000 and that defendants breached that
agreement. We reverse the circuit court's judgment and remand
for the entry of an order consistent with this opinion.
Reversed and remanded with directions.
MYERSCOUGH and STEIGMANN, JJ., concur.
- 10 -