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NEWMAN-GREEN, INC. v. ALFONZO-LARRAIN R.

June 26, 1985

NEWMAN-GREEN, INC., ET AL., PLAINTIFFS,
v.
ALEJANDRO ALFONZO-LARRAIN R., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Newman-Green, Inc. ("NGI") has charged Newman-Green de Venezuela ("NGV") and NGV shareholders Alejandro Alfonzo-Larrain R., Irene Larrain de Caplan, Rafael Tudela, Alberto Tudela and William Bettison (collectively "Guarantors"*fn1) with violations of various agreements involving NGV's manufacture and sales in Venezuela of NGI's patented aerosol valves. NGI now moves under Fed.R.Civ.P. ("Rule") 56 for summary judgment as to Count I of NGI's Amended Complaint. For the reasons stated in this memorandum opinion and order, summary judgment is granted as to liability, with damages yet to be determined.

Facts

On February 27, 1985 (in the "Opinion," 605 F. Supp. 793) this Court denied Guarantors' motion for summary judgment as to Count I. Appendix A to this memorandum opinion and order comprises (1) the statement of facts from the Opinion, equally applicable here,*fn2 and (2) the two letter agreements at the heart of this dispute.

Guarantors' Contentions

In opposition to NGI's motion, Guarantors rely in principal part on premises this Court has already rejected in the Opinion. From those flawed premises they purport to find the documents ambiguous. They then tender evidentiary material that assertedly shows:

    1. It was the parties' intention that the Guaranty
  Agreement not take effect until after SIEX approval
  of the License Agreement.
    2. NGI is not entitled to payments from Guarantors
  because it "frustrated" SIEX's approval of the
  License Agreement, thus preventing performance of the
  principal obligation.

Guarantors also address the measure of damages in case the Guaranty Agreement is determined to be enforceable against them. They propose two limitations on the extent of their liability:

    1. Despite its 5% language, they say the Guaranty
  Agreement was meant only to supplement the
  anticipated 3% royalty provision of a modified
  License Agreement. According to them, Guarantors were
  to be liable only for the 2% difference between the
  amount of royalties permitted by SIEX and that
  desired by NGI.
    2. For purposes of converting Guarantors'
  obligation (measured in bolivares) to dollars, the
  applicable exchange rate is that prevailing on the
  date of judgment rather than the date of Guarantors'
  breach of their agreement.

Rules of Construction*fn3

Illinois courts treat the meaning of an unambiguous contract as a question of law for the court. National Tea Co. v. Commerce & Industry Insurance Co., 119 Ill.App.3d 195, 199-200, 74 Ill.Dec. 704, 708, 456 N.E.2d 206, 210 (1st Dist. 1983). Guarantors seek to avoid that rule (and hence summary judgment) by characterizing the Guaranty Agreement as ambiguous, and then by presenting evidence they say raises a factual issue as to the parties' intentions when they put pen to paper.

But the threshold issue whether a contract is ambiguous is itself a question of law, not fact. Joseph v. Lake Michigan Mortgage Co., 106 Ill.App.3d 988, 991, 62 Ill.Dec. 637, 640, 436 N.E.2d 663, 665 (1st Dist. 1982). For that purpose a contract is ambiguous only if it is "reasonably and fairly susceptible to more than one meaning." Lenzi v. Morkin, 116 Ill.App.3d 1014, 1016, 72 Ill.Dec. 414, 416, 452 N.E.2d 667, 669 (1st Dist. 1983). Ambiguity is not established by mere disagreement of the parties as to the contract's meaning. Bank of Homewood v. Sjo, 113 Ill. App.3d 179, 183, 68 Ill.Dec. 817, 820, 446 N.E.2d 1214, 1217 (1st Dist. 1983). And an unambiguous agreement "must be given a fair and reasonable interpretation by the courts based on a consideration of the language and provisions contained therein." Arthur Rubloff & Co. v. Comco Corp., 63 Ill. App.3d 362, 367, 20 Ill.Dec. 338, 342, 380 N.E.2d 15, 19 (2d Dist. 1978).

Independent Viability of the Guaranty Agreement

Because the Confidentiality and Guaranty Agreements were executed at the same time in the course of the same transaction, they must be read and construed together.*fn4 Thread and Gage Co. v. Kucinski, 116 Ill.App.3d 178, 182, 71 Ill. Dec. 925, 928, 451 N.E.2d 1292, 1295 (1st Dist. 1983). And when they are read together, the Guaranty Agreement is not at all "reasonably and fairly susceptible to" the interpretation urged by Guarantors.

There is no question enforcement of the Confidentiality Agreement did not depend in any respect on enforceability of the License Agreement. On the contrary, un-enforceability of the License Agreement was the very predicate for the existence of the Confidentiality Agreement:

  It is understood that because of recent enacted
  legislation in Venezuela the license agreement will
  not become enforceable until such time as the
  provisions of the agreement are approved by the
  Venezuelan Government.
  In consideration of the covenants herein entered into
  between the parties, it is agreed that pending the
  approval of said license agreement that Newman-Green,
  Inc. will undertake to provide to Newman-Green de
  Venezuela aerosol valve assembly machinery embodying
  the proprietary, confidential and technical
  information and know-how of Newman-Green, Inc.

Thus the purpose and effect of the Confidentiality Agreement were to provide NGV the benefits it had bargained for in the License Agreement — but to do so in the period of unknown duration before the License Agreement could become enforceable under Venezuelan law. In turn, those benefits triggered royalty burdens under the License Agreement — but burdens that could not be enforced directly under that Agreement so long as Venezuelan law alone controlled. Clearly the only rational reading of the Guaranty Agreement is as a means to assure NGI's recovery of the corollary benefits defined by the License Agreement, corresponding directly to the benefits derived by NGV while SIEX approval of the License Agreement was pending.

Guarantors attempt to avoid reading the Guaranty and Confidentiality provisions in tandem by pointing out:

    1. the Guaranty Agreement's caption refers to
  "License Agreement";
    2. the text of the Guaranty Agreement is replete
  with references to the License Agreement; and
    3. the Guaranty Agreement makes no reference to the
  Confidentiality Agreement.

But the cases applying the "contemporaneous execution" rule do not require the documents to make explicit reference to one another.*fn5 Instead the common circumstances of their execution suffice to bind them into a single unit for contract construction purposes. And the Guaranty Agreement's references to the License Agreement reinforce rather than undercut the plain reading given by the Opinion and this opinion. What the Confidentiality Agreement contemplated (and accomplished) was the creation of NGV performance of its License Agreement undertakings, to get NGI under way before formal SIEX approval had been obtained. Of course the natural way to define Guarantors' responsibility — an obligation to match that NGV performance with the correlative royalties — was to state their responsibility in terms of the License Agreement's formula and term. They did exactly that in the Guaranty Agreement:

  In consideration for the execution of the license
  agreement dated June 13, 1974 from Newman-Green,
  Inc., Addison, Illinois to Newman-Green de Venezuela,
  the undersigned personally, individually and/or
  collectively agree that they guarantee the payment to
  Newman-Green, Inc. of an amount of money up to the 5%
  royalty set forth in the license agreement and for
  the period of time specified in the license
  agreement.

In much the same way, the Confidentiality Agreement also referred to the License Agreement to define the scope of the parties' responsibilities, rather than repeating the terms and conditions of the other agreement simply to produce a self-contained document. Plainly Guarantors cannot say those references somehow made the enforceability of the Confidentiality Agreement dependent on enforceability of the License Agreement. No more reason exists for reading such an implied condition into the Guaranty Agreement.

Guarantors Mem. 2 says to interpret the Guaranty Agreement as requiring royalty payments before SIEX approval of the License Agreement would be "to postulate that the parties contemplated operating illegally in the event anything but the entire license agreement was approved." But Guarantors' asserted interpretation suffers from precisely the same asserted infirmity: Guarantors would still operate in violation of SIEX strictures, this time by ensuring royalty payments in excess of SIEX-approved levels.*fn6

Thus Guarantors are really foreclosed by the plain meaning of the unambiguous documents, before they even get into their asserted issues of fact. But the poverty of their position is reconfirmed by the fact their only evidence in support of their interpretation — the deposition testimony of Guarantor William Bettison, Jr. ("Bettison")*fn7 — would fail even were it admissible to raise a genuine issue of fact.

Although Bettison claimed his understanding was the Guaranty Agreement would not take effect before SIEX approval of the License Agreement, he:

    1. specifically admitted the Guaranty Agreement
  contains no language supporting his interpretation
  (Dep. 217-19); and
    2. also acknowledged Guarantors had neither
  communicated that understanding to NGI nor discussed
  the issue with NGI in any fashion (Dep. 228).

Thus Guarantors have produced no evidence at all of a mutual intent or understanding to exclude from the Guaranty Agreement any royalty obligations accruing before SIEX approval of the License Agreement.

It is patently absurd for Guarantors to maintain, in the face of NGI's persistent concern over royalties, that NGI was willing to perform without any royalties for the indefinite period before SIEX approval. Parties opposing summary judgment are entitled to favorable factual inferences, but those inferences must be reasonable. Even were Guarantors able to overcome the first hurdle to permit introduction of ...


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