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08/17/87 Norman L. Sider, Trustee v. Outboard Marine

August 17, 1987





NORMAN L. SIDER, Trustee in Bankruptcy for James Chisholm &

513 N.E.2d 449, 160 Ill. App. 3d 290, 112 Ill. Dec. 35 1987.IL.1187

Appeal from the Circuit Court of Lake County; the Hon. William D. Block and the Hon. Bernard E. Drew, Jr., Judges, presiding.


JUSTICE WOODWARD delivered the opinion of the court. NASH and HOPF, JJ., concur.


Plaintiff, Norman L. Sider, trustee in bankruptcy for James Chisholm & Son, Inc., appeals from orders of the trial court granting defendant Outboard Marine Corporation's motions to dismiss count I of plaintiff's fifth amended complaint, granting defendant summary judgment as to count III of the fifth amended complaint and striking the affidavit of

James Chisholm & Son, Inc., was a distributor of "Lawn Boy" products such as power mowers, parts, and accessories which were manufactured by the Lawn Boy Product Group of the defendant, Outboard Marine. Chisholm became a distributor of defendant's products in 1963, operating under an oral agreement. In 1968, defendant determined that a written agreement was preferable, and the parties entered into a written agreement which remained substantially the same over the years, including the 1981 model year. The agreement contained the following pertinent provisions:

"7. RESERVATION: Company reserves the right, at any time and from time to time, to take any one or both of the following actions: (a) sell directly to dealers and others in the territory, and (b) appoint other distributors in the territory, if the company in its sole discretion shall deem such action desirable for any reason, and in no case shall Company have any liability to Distributor.

12. TERMINATION: Either party may terminate this Agreement without cause at any time on 90-days' written notice to the other party. In the event either party . . . violates any provisions of this Agreement, including failure to pay promptly for merchandise . . ., the said other party shall have the right, at its option, to terminate this Agreement immediately, such termination to be effective as of the date of the occurrence of the event giving rise to the option to terminate.

14. EFFECTIVE DATE: This Agreement, when accepted by Company shall be effective from the date of such acceptance to June 30, 1981, on which date it shall expire unless sooner terminated, as provided herein."

Except for the year 1979, defendant's products constituted 60% of Chisholm's sales.

Chisholm cultivated and trained a network of 200 dealers in its market and maintained a service and sales training school 52 weeks a year on its premises for dealers in defendant's products. By 1979, Chisholm's purchases constituted 60% of defendant's business for that year.

However, beginning in 1980, the relationship between the parties began to cool. According to plaintiff, defendant refused to acknowledge that the market for defendant's products was declining in the wake of the recession and the glut of snowblowers which had accumulated in the inventories of Chisholm and its network of distributors due to the lack of appreciable snow since 1979. Despite a letter to this effect from Roger Chisholm, one of Chisholm's owners, to defendant, defendant continued to press for payment and full shipments of lawnmowers. At the same time, the bank with which Chisholm did business and which was charging interest at the rate of 22%, was insisting that Chisholm decrease the size of its inventory. Chisholm also complained that defendant was eroding away its good relations with its dealers by offering other merchandisers better deals. On the other hand, defendant blamed Chisholm for low sales due to weak financial management at Chisholm and failure to sell aggressively. Defendant indicated on several occasions in both 1980 and 1981 its dissatisfaction with plaintiff's sales performance and concern with the financial well being of the company.

On March 7, 1981, Roger Chisholm wrote to Steve Wood, defendant's district sales manager, and Thomas Reynolds, national sales manager, explaining the market conditions in 1980 and 1981, as well as the changes in the mass merchandising accounts and the various problems with those accounts. In response, Reynolds advised Chisholm that it appeared Chisholm's organization was totally inadequate to provide the necessary marketing support for defendant and requested that Chisholm reply with a plan to remedy the situation. However, no plan was forthcoming from Chisholm.

According to Roger Chisholm, at the national sales convention in June 1981, Thomas Reynolds told him that Chisholm was doing a great job. Roger Chisholm took that to mean that Chisholm could go ahead with its commitments to the defendant made in his letter of March 7, 1981, and further, assured him that the 1982 agreement would be signed in October as in the past. Chisholm expended $121,855 on advertising defendant's merchandise. Chisholm continued to sell Lawn Boy products and took orders for the delivery of the 1982 new model merchandise.

In July 1981, defendant's representatives met with Roger and Alex Chisholm to discuss Chisholm's solvency and low sales performance. Chisholm was informed that defendant was terminating its line of credit and would thereafter sell to Chisholm only for cash. According to one of defendant's representatives, either Roger or Alex Chisholm indicated that they would review the situation with their bankers and were considering selling the company while it was still solvent. At another meeting on August 8, 1981, defendant demanded a $600,000 line of credit from Chisholm for additional funds with which to buy more products from the factory over and above the existing credit line. Chisholm obtained a $600,000 line of credit from Lake Shore National Bank. However, in September, defendant insisted that $250,000 of the line of credit be applied to future and past purchases rather than just to future purchases as had been agreed upon. Plaintiff refused to agree to the change. Further, though according to Chisholm its sales people had obtained $1,410,730.62 in orders for defendant's products which would have realized a profit for plaintiff in the amount of $311,000, defendant refused to sell except for cash.

On October 17, 1981, defendant advised Chisholm that defendant did not intend to enter into a 1982 model year (July 1, 1981, to June 30, 1982) distributorship agreement with Chisholm. On December 1, 1981, defendant notified all of plaintiff's dealers that they could continue to deal with Chisholm until March 1, 1982, or with the new distributor, OMC-Lawn Boy Distributor Chicago, a company-owned distributorship which was to open on December 14, 1981.

Thereafter, Chisholm filed suit against defendant alleging that defendant concealed its decision not to renew its distributorship agreement with Chisholm until after Chisholm had advertised, promoted, and taken orders for defendant's new line, and that defendant refused to fill orders obtained by Chisholm or to reimburse Chisholm for its lost profits and expenditures, defendant electing instead to fill the ...

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