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Palmer v. Beverly Enterprises

decided: July 7, 1987.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 84 C 8872, Harry D. Leinenweber, Judge.

Author: Cummings

Before CUMMINGS, CUDAHY, and EASTERBROOK, Circuit Judges.

CUMMINGS, Circuit Judge.

In this diversity action, Plaintiff, an Illinois citizen, sued defendant, a California corporation with its principal place of business in California. Defendant's corporate offices are located in Pasadena in that state. Count I of the complaint was for $150,000 for breach of an employment contract. Count II was for $300,000 (including punitive damages) for fraud and alleged that defendant misrepresented that it would purchase plaintiff's Illinois home after he commenced working for defendant in California. Upon completion of discovery, defendant moved for summary judgment and the district court granted that motion. We reverse and remand for trial.

Over a two-month period beginning in March 1983 plaintiff interviewed and negotiated with the defendant corporation for employment in its Western Division acquisition office in California. These meetings occurred in Illinois and California and included a four-day trip by plaintiff and his wife to Fresno, California, to meet the president of defendant's Western Division and to look for housing. On April 27, 1983, plaintiff met with Dan Bruns, one of defendant's vice presidents, at its Jackson, Mississippi, office. During that meeting plaintiff was orally offered a position with defendant but claims that he did not commit himself. When he returned to Illinois, he received a letter dated April 28 from Bruns "recapping" their April 27th discussion regarding his becoming Acquisition Director for defendant's Western Division in Fresno, California. In the letter, defendant agreed to pay plaintiff's relocation expenses. His beginning date was set for May 19. Upon receiving this letter in Illinois, he allegedly accepted this offer by telephone from Illinois to Mississippi on April 29.

Plaintiff was terminated by defendant on October 14, not long after he requested defendant to purchase him unsold house in Schaumburg, Illinois. Its appraised value was $195,000 - $197,000. Plaintiff's App. 28.

On April 18, 1986, the district court filed a memorandum opinion and order granting summary judgment to defendant under both the breach of contract and fraud counts.


The initial question presented is what state's law applies to the contract claim. As noted, plaintiff allegedly accepted defendant's offer in a telephone call from Illinois to Mississippi on April 29, and the district judge assumed this to be true. The district court recognized that "the last act necessary to complete the agreement was plaintiff's acceptance of the terms." Plaintiff's App. 17. Nevertheless, Judge Leinenweber concluded that the contract was executed in Mississippi because he though defendant's hearing plaintiff's acceptance on the Mississippi side of the interstate telephone call was the last act necessary to make the contract. He then concluded that Mississippi law applied to the claim because he thought the old rule of the law of the place of making the contract or lex loci contractus was the choice of law principle applied by Illinois courts when the performance is to be in more than one state and the making of the contract is in one state.

The district court erred when it concluded that the lex loci contractus rule is still followed by Illinois courts and that the Second Restatement of Conflict of Laws rule of choosing the forum with the "most significant contacts" is only applied by Illinois courts in multifaceted contractual situations. This Court held in Florida Risk Planning Consultants, Inc. v. Transport Life Insurance Co., 732 F.2d 593 (7th Cir. 1984), that the Illinois Supreme Court would apply the most significant contacts rule in all choice of law disputes involving contracts. There we stated that "Illinois courts have adopted the rule of the Restatement (Second) of Conflicts (1971)" and proceeded to apply the Second Restatement's most significant contacts rule of § 188 and the illegality rule of § 202 to determine the applicable law and the legality of an alleged implied contract requiring the payment of commissions for procuring insurance business. 732 F.2d at 595-596 (emphasis in original); see In re NuCorp Energy Sec. Litig., 772 F.2d 1486, 1492 (9th Cir. 1985) (applying most significant contacts rule to decide applicable law for contract dispute originally filed in the federal district court in Illinois and concluding on the basis of Florida Risk Planning that Illinois has adopted the choice of law rules of the Second Restatement); Sarnoff v. American Home Products Corp., 607 F. Supp. 77, 80 (N.D. Ill. 1985) (Illinois courts follow the Second Restatement's most significant contacts rule in contract cases), reversed in part on other grounds, 798 F.2d 1075 (7th Cir. 1986). Therefore, no matter whether plaintiff accepted the defendant's offer over the telephone on April 29 - thus arguably executing the contract in both Illinois and Mississippi and resulting in a multifaceted contractual situation within the meaning of P.S. & E., Inc. v. Selastomer Detroit, Inc., 470 F.2d 125, 127 (7th Cir. 1972) - or at the prior meeting in Mississippi on April 27 - thus executing the contract in Mississippi - the choice of law is determined by the most significant contacts rule.

Defendant urges us that Illinois courts still adhere to the lex loci contractus rule. The traditional choice of law rules followed by Illinois courts were that the law of the place of performance applied when the contract was to be performed wholly in one state, but if the contract were to be performed in more than one state, then the law of the place of contracting applied. Oakes v. Chicago Fire Brick Co., 388 Ill. 474, 58 N.E.2d 460 (1944); Walker v. Lovitt, 250 Ill. 543, 95 N.E. 631 (1911). However, this Court held in P.S. & E., Inc. that based on "The analogous modern tort cases relying upon the 'most significant contacts' rule," including Ingersoll v. Klein, 46 Ill. 2d 42, 262 N.E.2d 593 (1970), the Illinois Supreme Court would not apply the doctrine of lex loci contractus in a multifaceted situation. In Florida Risk Planning we concluded on the basis of those tort cases and two later Illinois Appellate Court cases on choice of law in contracts and trusts that in all choice of law disputes involving contracts Illinois courts apply the law of the jurisdiction with the most significant contacts. Defendant's argument is foreclosed by Florida Risk Planning, and our own examination of the Illinois case convinces us that there is no need to reconsider this holding.

Ingersoll v. Klein, 46 Ill. 2d 42, 262 N.E.2d 593 (1970), signifies that the Illinois Supreme Court will not rotely apply traditional conflict of laws rules when they result in the application of laws of a forum with little if any significant contacts with the underlying dispute. See id. at 45, 262 N.E.2d at 595. Although Ingersoll dealt with conflict of laws rules for torts, its reasoning extends to contract cases. In Ingersoll the court rejected the traditional rule of lex loci delecti, which calls for application of the law of the place of the tort. That traditional rule was based on the much criticized "vested rights doctrine," which reasoned that "'a right to recover for a foreign tort owes its creation to the law of the jurisdiction where the injury occurred and depends for its existence and extent solely on such law.'" Id. at 46, 262 N.E.2d at 595 (quoting Babcock v. Jackson, 12 N.Y.2d 473, 477-478, 240 N.Y.S.2d 743, 746, 191 N.E.2d 279, 281). The same premise also underlies the lex loci contractus rule, as was explained by Professor Beale, who was the Reporter for the First Restatement on Conflict of Laws:

If the law [of the place of contracting] annexes an obligation to the acts of the parties, the promisee has a legal right which no other law has power to take away except as a result of new acts which change it. If on the other hand the law of the place where the agreement is made annexes on legal obligation to it, there is no other law which has power to do so.

2 J. Beale, A Treatise on the Conflict of Laws § 332.4, at 1091 (1935); see Restatement of Conflict of Laws §§ 311, 332 (1934); see also Restatement (Second) of Conflict of Laws §§ 186-221 introductory note, at 557 (1971) (traditional choice of law rules for contracts and torts in the First Restatement were derived from the vested rights doctrine, but ...

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