that the mortgage grants it (together with the REA) an interest
in, and present assignment of . . . "[a]ll right, title, and
interest of the Mortgagor [Southwestern] in, to and under any and
all contracts heretofore or hereafter executed by and between the
Mortgagor and any person, firm or corporation providing for the
purchase . . . of electric power or energy by the
Mortgagor. . . ." (para. 15). (emphasis added). On the face of
the pleadings, REA and CFC have clearly asserted an interest in
the repudiation of the contract at issue. This interest is
buttressed by the "distinct and palpable" injury which the REA
and CFC have alleged will result if Southwestern is allowed to
repudiate the contract. Allen, 104 S.Ct. at 3325.
Paragraph 33 of the complaint provides that "Southwestern's
effort to repudiate the contract will imperil Soyland's financial
stability and its ability to repay its loans, and will impair the
economic value of the contract in which REA and CFC have a
security interest." (Emphasis added.) Further, at paragraph 34
the REA asserts that Southwestern's actions will "jeopardize the
REA power supply program both in Illinois and nationwide."
Therefore, the REA and CFC have asserted that they will be
injured if Southwestern is allowed to avoid the contract because
that avoidance will imperil the ability of Soyland to repay its
loans to REA and CFC.
Article 4(b) of the contract between Southwestern and Soyland
concerns the rate of power supply costs. In that section, the
contract specifically acknowledges that the contract is to
provide for the electrical power and energy rate "so that it [the
rate] shall produce revenues which shall be sufficient, but only
sufficient, with the revenues of the Seller [Soyland] from all
other sources, to meet the cost of operation and
maintenance . . . to make payments on account of principle of,
and interest on, all indebtedness of the Seller and to provide
for the establishment and maintenance of reasonable reserves."
Therefore, by the plain language of the contract, the REA and
CFC, holding the major percentage of the indebtedness of Soyland,
have a strong monetary interest in the validity of the contract
as it provides the security for payments on the loans to Soyland.
The injury which is asserted by the REA and CFC is quite clearly
interlinked with Southwestern's attempt to repudiate the
contract. The interest of the REA and CFC in this dispute is so
strong that the interests of justice demand that they be made a
part of the litigation concerning this contract. The injury which
is asserted by the REA and CFC is most likely to be redressed by
the declaratory relief sought. A decision in favor of the
plaintiffs would clearly prevent the injuries from occurring.
Allen, 104 S.Ct. at 3325.
The REA's regulation and supervision powers over rural
cooperatives have been recognized as "far more comprehensive than
those which the Federal Power Commission exercises over
investor-owned utilities. . . ." Salt River Project Agr. Dist. v.
Federal Power Commission, 391 F.2d 470, 473 (D.C.Cir. 1968),
cert. denied, 393 U.S. 857, 89 S.Ct. 104, 21 L.Ed.2d 126 (1968).
This is particularly true in the area of rate-making. "[I]t is in
these areas [rate-making] that, by their structural nature, the
cooperatives are effectively self-regulating. They are completely
owned and controlled by their consumer-members, and only
consumers can become members." Id. Salt River recognized the
emphasis of Congress, in establishing the REA, was to provide the
Administrator with "almost unlimited discretion" and
"extraordinary power" thereby allowing him to effectively oversee
the rural electrification program. Id. at 476, quoting 80 Cong.
Rec. (Part 3) 3308, 3318 (1936).
Recognizing this intent of Congress further supports the
finding that the REA has standing under the contract. By virtue
of this broad grant of power, together with the requirement of
7 U.S.C. § 904 that adequate security be provided for the rural
electrification loans, this Court finds that the intent of
Congress and the objective of the Act would be frustrated if
standing were denied. This interest of the REA and CFC, contrary
to defendant's characterization, is not an attempt by the
government to misuse its position as a creditor to have this
Court declare the contract to be valid.
Illinois courts, when addressing contractual relationships,
have recognized that certain third parties are entitled to sue on
a contract as a third-party beneficiary to the contract. "Whether
a party is a third party beneficiary depends upon intent of the
parties and must be determined on a case-by-case basis." Midwest
Concrete Products Co. v. LaSalle Nat'l Bank, 94 Ill. App.3d 394,
49 Ill.Dec. 968, 970, 418 N.E.2d 988, 990 (1981), leave to appeal
denied, (citing Vinylast Corp. v. Gordon, 10 Ill. App.3d 1043,
295 N.E.2d 523 (1973)). The Midwest court recognized:
[I]t is not sufficient that the performance of the
[contract] may benefit a third person, . . . it must
have been entered into for his benefit, or at least
such benefit must be the direct result of performance
and so within the contemplation of the parties.
Id., quoting 17 Am.Jr.2d Contracts § 304, at 729-30 (1964). A
consideration of this entire contract, and the circumstances
surrounding the drafting of it, reveals that the parties intended
that the REA and CFC would directly benefit from the contract.
The contract was a requirement of the loans by the REA and CFC,
it serves as the security for the loan, and the plain language
establishes that its purpose is to benefit the REA and CFC as
principal holders of Soyland's indebtedness by assuring that
payment can be made on the loans. The REA and CFC, therefore,
benefit as a direct result of the performance of the contract. As
such, their interest in the contract was clearly within the
contemplation of the parties, and Southwestern cannot now
challenge their standing under, or interest in, the contract.
Accord, I.P.C. Distributors v. Chicago Moving Picture Mach. Op.
Union, 132 F. Supp. 294 (N.D.Ill. 1955).
Furthermore, this Court finds that public policy demands that
the REA and CFC have standing to sue. The nature and function of
the REA would be severely jeopardized if it were not allowed a
voice in the dispute over the validity of this contract. The
structure of approximately 60 generation and transmission
cooperatives nationwide, and their approximately 800 distribution
member cooperatives, for whom the REA and CFC provide financing,
is based on a contract very similar to the one in dispute here.
Nationwide, this all-requirements contract has been utilized by
the Administrator to serve as the primary source of collateral
for loans and loan guarantees of the REA. This type of contract
assures that the long-term financing costs of providing power to
beneficiaries of the Act, such as Southwestern, are equitably
distributed. This all-requirements contract is a basic and
important element of the rural electrification system.
The Seventh Circuit has recognized that the "doctrine of
standing is a complex web, and all the parts of it must be
satisfied; but attention to the details of the doctrine does not
require us to give up our common sense. `[T]he constitutional
standing requirement [cannot be made] a mechanical exercise.'"
Palmer v. City of Chicago, 755 F.2d 560, 580 (7th Cir. 1985)
quoting Allen v. Wright, 104 S.Ct. at 3325.
In light of the foregoing, the defendant's arguments in support
of its Motion to Dismiss must fail. The Court has recognized that
the plaintiffs all have standing to sue and that this controversy
is properly litigated as a declaratory judgment. Moreover, the
Court finds that the REA and CFC are not attempting, in the
declaratory judgment action, to inappropriately exert pressure as
creditors of Southwestern for the benefit of Soyland. Rather, as
creditors of both, the REA and CFC have an interest in
determining the validity of the contract.
Accordingly, the Court finds that the REA and CFC have standing
to bring this declaratory judgment action, together with Soyland,
and that a cause of action has been stated sufficient to allow
this Court to determine the validity of the contract.
Therefore, the Court DENIES Southwestern's Motion to Dismiss.
Also pending before the Court is plaintiffs' Motion to Dismiss
the counterclaim. At oral argument, the defendant moved for
leave to amend the counterclaim to include the REA and CFC.
Initially, the Court notes that pursuant to Fed.R.Civ.P. 8(c),
the defendant's counterclaim is more properly taken as an
affirmative defense. While the Court generally construes these
claims as an affirmative defense under the Rule, the defendant's
request to amend provides it with an opportunity to correctly
designate its pleadings, as well as to properly include all
necessary parties. Defendant's oral motion for leave to amend is
GRANTED. Plaintiffs' Motion to Dismiss the counterclaim is
accordingly DENIED as being moot. Defendant is given leave to
file its amended responsive pleading within thirty (30) days of
the date of this Order.
IT IS SO ORDERED.
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