JANNUSCH v. NAFFZIGER

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Docket Number

No. 4-07-0061.

Attorney(S)

Dominic A. Salvati (argued), of Costigan Wollrab, P.C., of Bloomington, for appellants. Thomas E. Davies (argued), of Thomas E. Davies, P.C., of Morton, for appellees.

Judges

JUSTICE COOK delivered the opinion of the court:

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Smart Summary

Factual and Procedural Background

Gene and Martha Jannusch operated Festival Foods, a concession business, and alleged that they orally agreed to sell it to Lindsey and Louann Naffziger for $150,000. The defendants paid $10,000, took possession, operated the business during the 2005 season, and assumed various business expenses and responsibilities. [1][2][3]

After the season ended, the defendants returned Festival Foods. The plaintiffs unsuccessfully attempted to resell it and filed an action for breach of oral contract. Following a bench trial, the circuit court found for the defendants, concluding that although a contract had been formed, the evidence did not establish a meeting of the minds concerning its terms. [4][5][6]

The appellate court reversed and remanded with directions. [4][7][8]

Legal Issues Presented

Whether the Uniform Commercial Code governed the alleged sale of the concession business. [9]
Whether the oral agreement was enforceable under the UCC statute of frauds. [10]
Whether the parties formed an enforceable contract despite disputed or omitted terms and the absence of a writing. [11][12][13]
Whether the defendants’ return of the business constituted rejection or a breach of contract. [14][15]

Arguments of the Parties

Defendants' Arguments

The UCC did not apply because the transaction involved the sale of a business rather than merely goods. [9]
No enforceable agreement existed because the parties had not agreed on goodwill, a covenant not to compete, equipment-price allocation, lien releases, loan approval, and other terms allegedly essential to selling a business. [12]
The parties were only pursuing a future purchase, and Lindsey was not in a position to sign a written agreement because the defendants had not received loan proceeds or retained an attorney. [3][15]

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Magee v. Garreau	When the facts essential to a purported contract are undisputed, contract existence is a question of law.	The court stated this general rule in addressing contract formation. [16]
Avery v. State Farm Mutual Automobile Insurance Co.	Contract construction and interpretation ordinarily present questions of law for the court.	The court identified this principle as governing its review of the agreement. [16]
Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc.	The predominant-purpose test determines whether a mixed goods-and-services contract falls under UCC article 2.	The court applied the test and concluded that the agreement was predominantly for the sale of goods. [9]
Heuerman v. BM Construction, Inc.	Whether a contract is predominantly for goods or services is generally a question of fact.	The court relied on the evidence concerning the substantial tangible assets transferred. [9]
Fink v. DeClassis	The relative significance of intangible assets may bear on whether a transaction is predominantly one for goods.	The court contrasted the cited example with this case, where significant tangible assets supported applying the goods-sale framework. [9]
Hartbarger v. SCA Services, Inc.	An oral contract for the sale of goods that has been partially performed may be enforceable.	The court cited the principle together with the UCC provision concerning goods paid for or received and accepted. [10]
Academy Chicago Publishers v. Cheever	A contract may survive omitted terms, but not when essential terms are so uncertain that there is no basis for determining performance or breach.	The court distinguished the situation described in Cheever and found that the essential terms here were sufficiently definite. [13][14]
Dawson v. General Motors Corp.	An anticipated formal writing does not necessarily preclude enforcement of a specific preliminary promise.	The court held that the anticipated written agreement did not prevent enforcement because the essential terms had already been agreed upon. [13][15]
Steinberg v. Chicago Medical School	Contract formation does not require identical subjective understandings when the parties’ conduct objectively indicates agreement.	The defendants’ possession, operation, equipment purchases, tax payments, and other conduct clearly indicated agreement rather than merely an agreement to agree. [17]

Court's Reasoning and Analysis

The court treated contract existence and interpretation as legal questions where the material facts were not disputed. [16]

First, the court held that the UCC applied. Although the transaction involved an operating business, its assets included a truck, trailer, and substantial equipment. Applying the predominant-purpose test, the evidence supported finding that the agreement was primarily for the sale of goods. [9]

Second, the oral agreement was not barred by the UCC statute of frauds. Although sales of goods exceeding $500 ordinarily require a writing, the UCC provides exceptions when the opposing party admits the contract in court or when the contract has been partially performed. The defendants’ admissions and performance supported enforceability. [10]

Third, the UCC permits formation through conduct, permits the time of formation to remain undetermined, and does not invalidate an agreement merely because some terms remain open when the parties intended to contract and there is a reasonably certain basis for a remedy. [11][18]

The court found the essential terms sufficiently definite: the price was $150,000 and the items to be transferred were specified. The remaining obligation was performance, and the defendants took possession, paid $10,000, and used the property as their own. Their disappointment with the business income did not negate contract formation. [14]

The parties’ differing subjective accounts did not defeat formation because their conduct objectively demonstrated agreement. The defendants operated the business, replaced equipment, reported income, paid taxes, and paid Gene for time and expenses—conduct inconsistent with merely investigating a possible purchase. [17]

The anticipated formal writing and delayed loan approval likewise did not prevent enforcement. The defendants eventually obtained loan approval, consulted an attorney, and continued operating the business. Louann’s admission that an agreement existed for a $150,000 purchase and the UCC’s recognition that the precise formation date may be undetermined further supported enforcement. [15]

Finally, returning the business at the end of the season was not an effective rejection. The court concluded that the return constituted a breach of the existing contract. [14][15]

Holding and Implications

REVERSED AND REMANDED WITH DIRECTIONS. The appellate court held that the parties formed an agreement to sell Festival Foods for $150,000 and that the defendants breached it. [7][8]

The direct consequence was reversal of the circuit court’s judgment and remand for entry of an order consistent with the appellate opinion. The opinion does not identify broader implications or state that it established a new precedent. [7][8]

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GENE JANNUSCH et al., Plaintiffs-Appellants, v. LINDSEY NAFFZIGER et al., Defendants-Appellees.

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 freezers, 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. Defendants 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 defendants were "in no position to sign anything" because they had not received any loan money from the bank and did not have an attorney. 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 equipment, 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 defendants to run certain events for him and he ran the events where 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 insufficient to establish by a preponderance of the evidence that there was a meeting of the mhids 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 Automobile 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 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. BM 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 sufficient 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 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 agreement, 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 intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy." 810 ILCS 5/2-204 (West 2004).

Defendants argue that nothing was said in the contract about allocating a price for good will, a covenant not to compete, 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 Uncollected Stories of John Cheever)." Dawson v. General Motors Corp., 977 E2d 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 ineffective 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 expenses, all of which is inconsistent with the idea that defendants 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 continued 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 specifically 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 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.