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PENNWALT CORP. v. METRO. SAN. DIST. OF GR. CHICAGO
December 12, 1973
PENNWALT CORPORATION, A CORPORATION, PLAINTIFF,
THE METROPOLITAN SANITARY DISTRICT OF GREATER CHICAGO, A MUNICIPAL CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Bauer, District Judge.
MEMORANDUM OPINION AND ORDER
This cause comes on the plaintiff's motion for summary judgment
pursuant to Rule 56 of the Federal Rules of Civil Procedure.
This is a diversity of citizenship action seeking to redress
the alleged unjust enrichment of the defendant Metropolitan
Sanitary District of Greater Chicago ("Sanitary District") by its
refusal to reimburse the plaintiff Pennwalt Corporation
("Pennwalt") for Pennwalt's discharge of the Sanitary District's
legal obligation to pay Illinois Use Tax.
The parties have agreed, solely for the purpose of the
disposition of the instant action, to the following stipulation
1. The amount in controversy in this action exceeds
$10,000 exclusive of interest and costs, and this
Court has jurisdiction of the parties and of the
subject matter by virtue of diversity of
citizenship among the parties and the amount in
2. Pennwalt is a corporation organized under the laws
of Pennsylvania and has its principal place of
business in that state. Until March 31, 1969,
Pennwalt's name was "Pennsalt Chemical
3. Pennwalt, is and at all times relevant hereto was,
engaged in the manufacture and sale of industrial
chemicals including ferric chloride.
4. The Sanitary District is a municipal corporation
organized under the laws of Illinois. The primary
functions of the Sanitary District are to provide
water purification and sewage treatment and
disposal for the Chicago metropolitan area.
5. One of the chemicals used by the Sanitary District
in performing its functions is ferric chloride. On
the 10th day of April, 1958, Pennwalt and the
Sanitary District entered into Contract No. 58-17
under which Pennwalt agreed to sell, and the
Sanitary District agreed to purchase, quantities
of real ferric chloride in solution during
quarterly periods beginning
May 1, 1958 to March 31, 1963.
6. At the time the parties entered into the contract
for the purchase and sale of ferric chloride, and
at all times thereafter, Illinois levied a tax on
the purchase of tangible personal property sold
for use or consumption in Illinois. That tax is
and was known as the Illinois Use Tax.
7. The Sanitary District's acquisition of ferric
chloride from Pennwalt constituted a purchase by
the Sanitary District of tangible personal
property not purchased for resale.
8. From May 1958 until July 1961, the Sanitary
District was exempt from the Illinois Use Tax by
reason of its status as a "governmental body."
9. From August 1, 1961 to March 23, 1963 the Sanitary
District was not exempt from the Illinois Use Tax.
10. The Sanitary District did not pay Illinois Use
Tax to Pennwalt on its purchases of ferric
chloride during the period August 1, 1961 to
March 23, 1963. The only reason given by the
Sanitary District for not paying the Use Tax on
its purchases of ferric chloride from Pennwalt
during the period August 1, 1961 until March 23,
1963 was that it had contracted with Pennwalt for
such purchases at a time when it was exempt from
the Illinois Use Tax.
11. Beginning in October of 1961, Pennwalt attempted
to collect the 3 1/2% Illinois Use Tax from the
Sanitary District on sales of ferric chloride by
the issuance of debit memoranda.
12. On November 14, 1961, E.A. Janssen, Engineer of
Estimate and Inspection for the Sanitary
District, advised Haskins & Sells, the certified
public accountants for Pennwalt, that Pennwalt's
attempted collection of the Illinois Use Tax was
erroneous because the contract under which the
sales were made was awarded prior to July 15,
1961. Pennwalt accepted the Sanitary District's
contention that no Illinois Use Tax was due on
sales of ferric chloride under Contract No. 58-17
and made no further attempts between November
1961 and May 1963 to collect said tax.
13. Under date of May 6, 1963, Pennwalt executed a
release in favor of the District. The release
recites as consideration the payment to Pennwalt
by the District of $14,658.50, which was the
undisputed balance due Pennwalt on Contract
14. On April 18, 1963, the Sanitary District advised
Pennwalt that its exemption from the Illinois Use
Tax was reinstated as of March 21, 1963 and that
the Sanitary District was not subject to the Use
Tax on deliveries made after that date even
though the contract ...
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