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United Air Lines, Inc. v. Conductron Corp.

OPINION FILED FEBRUARY 26, 1979.

UNITED AIR LINES, INC., PLAINTIFF-APPELLEE,

v.

CONDUCTRON CORPORATION ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. WALTER J. KOWALSKI, Judge, presiding.

MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:

United Air Lines, Inc. (plaintiff), brought an action for breach of contract against Conductron Corporation, McDonnell Douglas Electronics Company, a subsidiary of McDonnell Douglas Corporation, and McDonnell Douglas Corporation (defendants). In due course Conductron merged into McDonnell Douglas Electronics Company (later dissolved) and became a division of McDonnell Douglas Corporation. The case involves sale by defendants to plaintiff of an aircraft flight simulator. This machine was destroyed by fire while on plaintiff's property. The trial court entered summary judgment in favor of plaintiff for $1,326,573.20. Defendants appeal.

Defendants contend that the trial court erred in entering summary judgment for plaintiff because the risk of loss of the simulator was upon plaintiff at the time of its destruction. In this regard defendants urge that at the very least there were issues of material fact concerning whether the simulator conformed to the agreement and had been accepted by plaintiff. Defendants contend these factors would shift the risk of loss to plaintiff. Defendants also contend that there was a genuine issue of material fact as to the causation of the fire. Defendants assert that plaintiff's action was barred by a four-year statute of limitations and that the trial court abused its discretion in denying defendants leave to file an amended answer pleading the statute as a bar. Finally, defendants contend that they were not amenable to service of process in Illinois and denial by the trial court of their motion to quash service of process violated due process.

Plaintiff contends that at the time the simulator was destroyed the risk of loss was upon defendants. In this regard, plaintiff urges that defendants defaulted under the terms of the contract by failing to deliver a conforming aircraft flight simulator; this default was never cured; the simulator was never accepted by plaintiff because of its deficiencies and plaintiff at all times retained the right of rejection. Plaintiff further contends that defendants waived the issue regarding the statute of limitations by tardy attempt to raise the point; the trial court acted within its discretion in denying leave to defendants to amend and there was no excuse for the tardiness of defendants. Plaintiff finally contends that defendants have submitted to the jurisdiction of the court of Illinois.

Many of the facts which appear from the pleadings, interrogatories, depositions, and affidavits are undisputed. The purchase agreement between plaintiff and defendants, some 65 pages in length, was executed on December 30, 1966. The agreement contains 19 articles and was supplemented by a number of change orders. It required defendants to deliver a Boeing 727 digital flight simulator to plaintiff on January 13, 1968. A flight simulator is a highly sophisticated electro-mechanical device operated by computers. It is designed to simulate the experiences of a pilot in the cockpit of a jet airplane during flight. As flight simulators are used for training pilots, they must meet the requirements necessary for approval by the Federal Aviation Administration (FAA). The contract so provided. In addition the contract provided that the simulator would conform to plaintiff's specifications.

The original contract provided for inspection and testing of the simulator by plaintiff at defendants' plant prior to its shipment to plaintiff's Flight Training Center in Denver, Colorado. The defendants agreed to correct any deficiency or discrepancy appearing from such inspection. The agreement further provided that when delivery of the simulator was made title would pass to plaintiff but that such delivery would not constitute acceptance of the simulator by plaintiff. Final acceptance by plaintiff was subject to satisfactory completion and also to certification by the FAA.

Defendants failed to complete fabrication of the simulator by the agreed-upon date. This resulted in a request by plaintiff that the simulator be delivered to the plaintiff's training center in Colorado for the testing process which, under the original agreement, could have been completed at defendants' plant. On February 20, 1969, the parties entered into a modification of the contract referred to as Change Order Number 3. This order provided for disassembly of the machine, its delivery to plaintiff by common carrier not later than February 28, 1969, and reassembly by defendants on plaintiff's premises not later than March 15, 1969. From July 1, 1969, to August 1, 1969, the simulator was to be available to plaintiff for demonstration purposes and for correction by defendants of deviations noted by plaintiff in the above-mentioned testing. The document stated that in the event the defendants were unable satisfactorily to correct all deviations prior to November 1, 1969, the plaintiff would have the right to cancel the agreement and receive a refund of all payments made to the defendants as buyer plus liquidated damages. The change order also gave plaintiff the right to use the simulator for personnel training purposes.

While the simulator was still in possession of defendants upon their facilities, plaintiff's personnel noted some 647 deficiencies in its operation. These difficulties were recorded and reported to defendants by means of written reports referred to as "squawk sheets." The simulator was delivered to plaintiff's facility and was reassembled by defendants on March 14, 1969, in accordance with Change Order Number 3. Since the machine had not received FAA approval, it could not be used as an aircraft flight simulator. It was used for training purposes to acquaint and familiarize pilots with instrument location in the cabin of a Boeing 727 aircraft.

On April 18, 1969, the simulator was tested for 10 hours by two of plaintiff's test pilots. About 10 p.m. a fire was discovered in the machine. The simulator was substantially damaged. The origin of the fire is unknown. After the fire, plaintiff requested that defendants dismantle and ship the simulator back to their plant for repairs at plaintiff's expense. On May 16, 1969, plaintiff notified defendants that they considered there was a breach by defendants of the warranties contained in the purchase agreement. On June 4, 1969, the parties amended the agreement by Change Order Number 4. This document provided that the plaintiff would receive $60,000 as liquidated damages for the late delivery of the simulator to be deducted from the remaining payments due defendants. Plaintiff commenced this action on May 11, 1973, seeking rescission of the contract and damages. On January 28, 1977, plaintiff filed count VII as an amendment to the complaint. This amendment alleged that the risk of loss of the simulator was upon defendants at the time it was destroyed.

Subsequently, plaintiff filed a motion for partial summary judgment on this risk of loss count. Plaintiff later amended this motion by adding a claim for prejudgment interest. Summary judgment in favor of plaintiff was entered by the trial court based on the theory that the simulator had never been accepted by plaintiff and, therefore, the risk of loss remained upon defendants. The order allowed plaintiff $1,043,434.33 as a refund of partial payments made, $60,000 as liquidated damages for delay and prejudgment interest of $223,138.78; a total of $1,326,573.20. No issue is raised on computation of these damages.

This opinion will state additional facts as required. Also, facts regarding which the parties are in conflict will be duly noted. All contentions advanced by defendants will be considered although not in the order as summarized above.

I.

After service of process in Illinois, McDonnell Douglas Corporation filed a general appearance. Conductron Corporation and McDonnell Douglas Electronics Company filed special and limited appearances. Both moved to quash service of process. Their motion was supported by affidavits and exhibits. Plaintiff filed a memorandum in opposition to the motions to quash. The trial court denied the motions and these defendants filed general appearances. Defendants raise the issue as to whether their activities constituted transaction of business within Illinois as to subject them to the jurisdiction of the Illinois courts>. Section 17 of the Civil Practice Act (Ill. Rev. Stat. 1977, ch. 110, par. 17) provides in relevant part:

"§ 17. Act submitting to jurisdiction — Process. (1) Any person, whether or not a citizen or resident of this State, who in person or through an agent does any of the acts hereinafter enumerated, thereby submits such person, and, if an individual, his personal representative, to the jurisdiction of the courts> of this State as to any cause of action arising from the doing of any such acts:

(a) The transaction of any business within this State."

• 1, 2 In Braband v. Beech Aircraft Corp. (1978), 72 Ill.2d 548, 382 N.E.2d 252, the supreme court noted that two requisites must be met to enable a state to assert jurisdiction over a foreign corporation. The first requirement is that Federal concepts of due process must be satisfied. "[D]ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington (1945), 326 U.S. 310, 316, 90 L.Ed. 95, 66 S.Ct. 154, cited in Braband, 72 Ill.2d 548, 553-54.

The second requirement is that the defendant corporation must have had such minimum contacts "with the state of the forum as make it reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought there." (Shaffer v. Heitner (1977), 433 U.S. 186, 203-04, 53 L.Ed.2d 683, 697, 97 S.Ct. 2569, 2580, quoting from International Shoe, 326 U.S. 310, 317, 90 L.Ed. 95, 102, 66 S.Ct. 154, 158.) It has been stated that the contacts with the state of the forum must be sufficient "to make it reasonable and just according to our traditional concept of fair play and substantial justice * * *" to permit the State to enforce the claim. Gray v. American Radiator & Sanitary Corp. (1961), 22 Ill.2d 432, 438, 176 N.E.2d 761, quoting from International Shoe Co., 326 U.S. 310, 320, 90 L.Ed. 95, 104, 66 S.Ct. 154.

• 3, 4 The courts> of Illinois have also consistently held that what is fair and reasonable must be determined on a case-by-case basis. (Braband, 72 Ill.2d 548, 556; Gray, 22 Ill.2d 432, 440; Citizens Bank & Trust Co. v. Pittman (1977), 52 Ill. App.3d 137, 367 N.E.2d 265; Wiedemann v. Cunard Line Ltd. (1978), 63 Ill. App.3d 1023, 380 N.E.2d 932.) It has also been held in Illinois that it is not merely contacts which are considered in determining whether it is fair and reasonable that a defendant be amenable to service of process in Illinois but also the nature of the business transaction, the applicability of Illinois law, the contemplation of the parties, and the availability of witnesses. Colony Press, Inc. v. Fleeman (1974), 17 Ill. App.3d 14, 308 N.E.2d 78.

• 5 It has been otherwise stated that while physical presence in itself is not always necessary, the act or transaction which is viewed as "doing business" must have substantial connection with the State. (Cohan v. Municipal Leasing Systems, Inc. (N.D. Ill. 1974), 379 F. Supp. 1022; Cook Associates, Inc. v. Colonial Broach & Machine Co. (1973), 14 Ill. App.3d 965, 304 N.E.2d 27.) As these holdings look to the quality of the contact between the act and the forum, a single act may well be sufficient to subject a defendant to the jurisdiction of the Illinois courts>. International Merchandising Associates, Inc. v. Lighting Systems, Inc. (1978), 64 Ill. App.3d 346, 380 N.E.2d 1047. In addition it has been held that the enactment of the statute first above cited indicates "a conscious purpose to assert jurisdiction over nonresident defendants to the extent permitted by the due-process clause." Braband, 72 Ill.2d 548, 557, quoting from Nelson v. Miller (1957), 11 Ill.2d 378, 389, 143 N.E.2d 673.

Defendants contend that they did not transact business in Illinois so that the exercise of personal jurisdiction over them violates due process. It is correct that defendants are not registered to do business in Illinois; have no agents or offices here; own no property here and pay no Illinois taxes. The machine here involved was manufactured and partly tested in Missouri, partly tested in Colorado and destroyed there. However, these are all negative facts. The issue is the affirmative or positive contacts between these defendants and the State of Illinois.

The record shows that on December 5 and 6, 1966, Mr. J. Moroney, defendants' assistant manager of contracts, and Mr. W.W. Toole, defendants' program manager, met with plaintiff's representatives at plaintiff's principal offices in Chicago. This meeting occurred approximately one month before the execution of the purchase agreement by the parties. It is conceded that the meeting concerned the aircraft flight simulator and the purchase contract. While there are other contacts between defendants and this State, it is clear that this act alone, most intimately connected with the contract which is the source of this controversy, is sufficient to require defendants to defend this suit in Illinois.

Plaintiff urges additional contacts between defendants and Illinois. The record shows that defendants engaged in employment and hiring activities in Illinois from 1968 through 1969. This activity consisted of campus interviews with students and payment of an employment agency in Chicago for recruiting employees. The record indicates that defendants did business with Illinois suppliers of various products. They conducted a goodly amount of advertising in Illinois for sale of their products including the aircraft flight simulator. However, in addition to these various contacts above described, the meeting in Chicago between representatives of defendants and plaintiff is, in our opinion, the strongest reflection of the contacts between defendants and the State of Illinois.

Precontract negotiations have been held by Federal courts> to constitute transaction of business in Illinois. In Scovill Manufacturing Co. v. Dateline Electric Co. (7th Cir. 1972), 461 F.2d 897, representatives of Scovill, a Connecticut corporation, and defendant Dateline, an English corporation, met in Chicago at the 1968 Housewares Show. Subsequent negotiations in Chicago and other cities resulted in a sales contract between the parties. In holding that Dateline, through its meetings with Scovill in Chicago, had transacted business in Illinois within the meaning of the long-arm statute, the court stated (Scovill, 461 F.2d 897, 900):

"A defendant who sends an agent into Illinois to solicit or to negotiate a contract is transacting business ...


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