Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

LAKE FOREST ACADEMY v. AMERICAN LANGUAGE ACADEMY

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


September 27, 1991

LAKE FOREST ACADEMY, Plaintiff,
v.
AMERICAN LANGUAGE ACADEMY, Defendant

The opinion of the court was delivered by: SHADUR

MEMORANDUM OPINION AND ORDER

 Lake Forest Academy ("Lake Forest" in this opinion, though the parties' agreements refer to it as "The School") filed a Complaint (the "Complaint") against American Language Academy ("American" in this opinion, though the parties' agreements and the Complaint refer to it as "ALA") in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois, seeking a declaratory judgment as to the validity of a renewal clause (the "Renewal Clause") in Paragraph 9 *fn1" of an agreement ("Second Agreement") between the two Academies. In relevant part the Complaint alleges:

 9. That LFA contends that [Second Agreement para. 9] does not provide ALA with the unilateral right to perpetually renew the Agreement for successive terms of three (3) years upon the same terms and conditions of [the Second] Agreement [ ].

 10. That LFA contends that [Second Agreement para. 9] is unconscionable and thus has no force and effect or in the alternative, the entire Agreement has no force and effect.

 11. That LFA contends and ALA by its own actions admits that the [Second Agreement] is without definite duration and is therefore terminable at the will of either of the parties or in the alternative, will continue for a reasonable time under the circumstances which AFA contends has [sic] already occurred.

 American properly removed this case to this Court on February 21, 1991 under 28 U.S.C. ยงยง 1441 and 1446. *fn2"

 Both Lake Forest and American now move for summary judgment under Fed. R. Civ. P. ("Rule") 56. *fn3" For the reasons stated in this memorandum opinion andorder, Lake Forest's motion for summary judgement is denied and American's is granted. *fn4"

 Facts

 Lake Forest is a college preparatory school located in Lake County, Illinois. American is engaged in the business of teaching the English language to persons who do not speak it. On June 25, 1979 Lake Forest and American entered into a written agreement ("First Agreement") allowing American to operate an English-as-a-second-language program on the Lake Forest campus. That Agreement was to be in effect from August 1, 1979 until August 31, 1984 and contained this renewal clause (First Agreement para. 9):

 ALA shall have an option to renew this agreement for successive terms of three (3) years each, commencing with the expiration of the original agreement term. All provisions in effect under the original agreement term shall govern any such renewal terms. In the event that ALA elects to exercise its option to renew this agreement following the original or any succeeding term, ALA shall give to The School, notless than six (6) months prior to the expiration of the then-current term, written notice of its intent to exercise such option.

 First Agreement para. 11 also contained a provision as to its potential early termination:

 (a) In the event that either party is found in material breach of any provision of this agreement, the party in breach shall have thirty (30) days to correct such breach, commencing with the receipt of notice of breach from the other party. If, upon the expiration of the thirty (30) days, the breach of provision continue [sic] uncorrected, the party giving notice of breach may elect to give notice of termination to be effective not less than thirty (30) days from the date of such notice.

 (b) Except as provided in the preceding Paragraph 11(a), this agreement shall operate as a notice of termination, and both parties waive all other notices of termination.

 (c) Nothing in this paragraph shall entitle either party to notice of termination upon expiration of this agreement.

 (d) For any breach other than a material breach, neither party shall have any right to terminate or cancel this agreement, but shall be limited to money damages.

 Finally, Agreement para. 13 contained anti-oral-waiver and integration clauses:

 (a) This agreement constitutes the entire agreement and understanding of the parties and no other prior oral or written communications will be of any further force and effect.

 (b) The School and ALA may, by mutual agreement, amend or waive provisions in this agreement, but, except for any overriding statute or constitution, nothing other than a written amendment or waiver clearly denominated as such and duly executed by the parties hereto, their successors and permitted assigns, shall operate to amend or waive any of these provisions.

 Before the First Agreement expired, Lake Forest asked for certain modifications to provide additional revenue guaranties to Lake Forest and to provide for greater integration of American students into Lake Forest's curricular and extracurricular activities. Lake Forest and American entered into negotiations that culminated in the Second Agreement (dated November 21, 1983), which implemented those changes and repeated verbatim the same clauses already quoted from the First Agreement. *fn5"

 Second Agreement para. 2(b)(1) introduced a new provision expressly linking the fees payable to Lake Forest by American to Lake Forest's tuition charges to its own full-time students from time to time:

 (b) For the foregoing facilities, services, accommodations, and room and board, ALA shall pay to The School a fee per full-time ALA student enrolled per ALA academic term, according to the following schedule:

 (1) During the academic year, forty-eight percent (48%) of The School tuition and room and board fees for each ALA student enrolled in the program. The number of students for which ALA will guarantee such payment will be mutually agreed upon by November 1 of the preceding academic year and will be no fewer than twenty (20) nor more than thirty-five (35) students. If no figure is mutually agreed upon, the twenty (20) student minimum will be in effect.

 And like the First Agreement, Second Agreement para. 2(d) also contained the following allowance for price changes:

 Future increases or decreases in the fees payable under this Agreement shall be effected to ensure that such fees payable continue always to bear the same proportion that fees herein specifically defined bear to the sum of The School's 1979-80 boarding student tuition and comprehensive fee.

 Even though the Second Agreement was entered into in late 1983, it was to take effect on expiration of the First Agreement: It ran for a period of 60 months beginning September 1, 1984 and ending August 31, 1989.

 In 1985 the Second Agreement was amended by the "Amendment," but the Amendment affected neither the term nor any of the relevant clauses quoted earlier. *fn6" On February 24, 1989 American sent notice to Lake Forest that American had elected to exercise its option to renew the Second Agreement for three years after August 31, 1989. Since then the parties have been operating under the terms and conditions of the renewed Second Agreement, as amended, which will expire--unless further renewed--on August 31, 1992.

 Contractual Meaning

 Despite the plain language of the Renewal Clause that American has the "option to renew this agreement for successive terms of three (3) years each," Lake Forest's Mem. 2 advances two theories supporting the notion that the Clause does not mean what it says:

 It is clear from the conduct of the parties that they viewed the contractual arrangement as one with a defined term, and thus required the preparation and execution of a new contract at the end of each term.

 * * *

 Rather than giving ALA the unilateral right to perpetually renew the [Second] Agreement, LFA maintains that by the terms of the Agreement and Illinois law, ALA is entitled to only one renewal.

 Simultaneously-filed D. Mem. 7 meets that contention head on:

 The language of [the Renewal Clause] is plainly not ambiguous. It is clear and direct, and reasonably susceptible to only one meaning: that it provides ALA the option to renew the agreement for successive terms, providing that ALA properly exercises its option and that neither party terminates the Agreement for cause.

 Both American's arguments call for an interpretation of the Second Agreement under Illinois law. *fn7" Lumpkin v. Envirodyne Industries, Inc., 933 F.2d 449, 456 (7th Cir. 1991) (citations omitted) explains:

 In construing the terms of a contract, a court is required to engage in a two-fold inquiry. First, it is necessary to look to the plain language of the provision at issue. Reviewing Illinois law, this Court has noted that "the starting point must be the contract itself. If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over." If the plain language of the contract is ambiguous, then "the court must go on to declare [the contract's] meaning." If the court finds that a contract is ambiguous and that extrinsic evidence is undisputed, then the interpretation of the contract remains a question of law for the court to decide.

 At the outset of that "two-fold inquiry" this Court must turn to the plain language of the Second Agreement to determine whether it is ambiguous on its face. Riney v. Weiss & Neuman Shoe Co., 217 Ill. App. 3d 435, 1991 Ill. App. LEXIS 1332, at *14, 160 Ill. Dec. 375, 577 N.E.2d 505 -15 (4th Dist. Aug. 6, 1991) (citations omitted) states:

 A contract is ambiguous if its terms are capable of being understood in more than one sense because either an indefiniteness of expression or a double meaning is attached to them. A provision is not rendered ambiguous simply because parties do not agree on its meaning.

 In this instance the Renewal Clause can fairly be understood in only one way: It explicitly states that American has the right to renew for "successive terms"--more than one. And if that plural term left any room for doubt, the clause goes on to say that the right of renewal arises "following the original, or any succeeding term." Unless there is some other reason under the law to limit the contract terms, then, Lumpkin states that this Court's "inquiry is over."

 Lake Forest's assertion that the "conduct of the parties" should be considered by this Court to assist in its interpretation of the contract is without merit. *fn8" Lake Forest offers no extrinsic evidence to show that the language is ambiguous or that the words in fact mean something other that what they say. This is not a situation in which ( FDIC v. W.R. Grace & Co., 877 F.2d 614, 620 (7th Cir. 1989)):

 although the agreement itself is a perfectly lucid and apparently complete specimen of English prose, anyone familiar with the real-world context of the agreement would wonder what it meant with reference to the particular question that has arisen. *fn9"

 Nor is there any hint in the record that "successive terms" is capable of more than one meaning.

 Indeed, even if both parties mistakenly thought that the Second Agreement meant something other than its plain language, in the absence of any ambiguity that plain language controls. As Riney, 217 Ill. App. 3d 435, 1991 Ill.App. LEXIS 1332, at *15, 160 Ill. Dec. 375, 577 N.E.2d 505 (citation omitted) explains, extrinsic evidence may be used only to show that the words in the contract have either "an indefiniteness of expression or a double meaning." *fn10" As already stated, Riney, id. (citation omitted) then goes on to say:

 A provision is not rendered ambiguous simply because parties do not agree on its meaning.

 Despite the clarity of American's right to "successive" renewals, Lake Forest counters with two contentions:

 1. "By the terms of. . .Illinois law, American is entitled to only one renewal" (P. Mem. 2-3). *fn11"

 2. In the alternative the Second Agreement is terminable at will because (P. Mem. 4-5):

 Under Illinois law, a contract which fails to fix a time for its duration and calls for continuous performance is ordinarily terminable at the will of either party.

 Both arguments are premised on the fiction that if American has the right to renew the Second Agreement perpetually, it is facially a perpetual contract. But even if that were assumed to be true, *fn12" neither position helps Lake Forest here. They will be discussed in turn.

 One Renewal or Successive Renewals?

 P. Mem. 3 urges that there are only two ways that this Court can interpret the Second Agreement under Illinois law: Either it is a perpetual contract, in which case it is "void," or in the alternative it must only allow for "a single renewal." That poses a false dilemma, for the cases that Lake Forest cites simply do not dictate those exclusive alternatives.

 For example, Schumacher v. Fatten, 18 Ill.App. 2d 387, 394, 152 N.E.2d 402, 406 (2d Dist. 1958) held that lease for a specified five-year term "with option to renew," and with nothing else said about renewal, obviously denoted a single renewal of the same length as the underlying contract. And the only other case to which Lake Forest refers, Davis v. Nokomis Quarry, Inc., 77 Ill. App. 3d 1011, 1015, 397 N.E.2d 216, 220, 33 Ill. Dec. 883 (5th Dist. 1979), accurately explained Schumacher in these terms:

 We regard Schumacher as standing for the proposition that absent clear manifestation of the parties' contrary intent, an option to renew will effect but a single extension of the same length as the original lease.

 Thus Schumacher, which provides a rule of construction only when the contract conveys no contrary meaning, unquestionably does not apply here. In this case the Renewal Clause contains a "clear manifestation of the parties' . . . intent" to give American an option to renew the contract repeatedly for "successive terms of three (3) years each." "Successive terms" just as unquestionably includes the possibility of more than one renewal, for the Renewal Clause goes on to state (emphasis added):

 In the event that ALA elects to exercise its option to renew this agreement following the original or any succeeding term . . . .

 Hence the total absence of any even arguable ambiguity leaves no room to use the gap-filling rule in Schumacher to construe the Second Agreement. *fn13"

 Because the Second Agreement expressly provides for the possibility of successive terms that could perhaps lead to a perpetual contract, does Lake Forest's proposed alternative--that the Agreement is void--shut the door on American? Absolutely not. Even P.Mem. 3 admits that Davis "recognized the validity of a perpetual lease" *fn14" when it held (77 Ill. App. 3d at 1017, 397 N.E.2d at 221, paraphrased by substituting "contract" for "lease"):

 Whether the [contract] is considered a perpetual [contract], or a [contract] for a one year term containing a covenant of perpetual renewal for a like term unless terminated as expressly provided therein, we hold that the intention of the parties to enter into such a perpetual [contract] is clearly and unambiguously expressed in the terms of the [contract].

 To hold that the perpetual lease there was intended, Davis pointed to such language as "from year to year thereafter" or (in another case cited by the Davis court) "succeeding years" to prove that the parties intended that there be more than one renewal. In precisely the same way, the words "successive terms of three (3) years each" in the Renewal Clause convey the clear meaning that American has the perpetual right to renew the contract for those successive terms. And like the Appellate Court in Davis, this Court also holds that the Second Agreement is unambiguous: It gives American the absolute option to renew for another three-year term at the end of the current term and for successive terms thereafter.

 Terminable at Will?

 One untenable argument by Lake Forest begets a second: It contends that if the Second Agreement does offer the possibility of perpetual duration, it can be terminated at will by either party. P.Mem. 5 cites two cases for that proposition: Consolidated Laboratories, Inc. v. Shandon Scientific Co., 413 F.2d 208, 211 (7th Cir. 1969) and Stein v. Isse Koch & Co., Chicago, 350 Ill.App. 171, 112 N.E.2d 491 (1st Dist. 1953). But the rule announced in both those cases applies only if both the contract's duration and the manner in which it can be terminated are in doubt ( Consolidated Laboratories, 413 F.2d at 211-12; Stein, 350 Ill.App. at 176, 112 N.E.2d at 493). In such a case the contract is left entirely unclear as to whether or when it can be terminated, so it may be assumed that it is an at-will contract. Significantly, the courts in both Consolidated Laboratories and Stein found that the manner in which the contracts before them were to terminate was not in doubt, so that neither case required an at-will construction of the contract.

 Just so, no doubt exists here. First, the Second Agreement had an initial duration of five years, with each subsequent renewal specified as three years in length. Second--even if this Court were to accept the bizarre notion that just because American could perpetually renew the Second Agreement its duration is somehow rendered unclear *fn15" --there is another fundamental reason why this contract cannot possibly be terminable at will: Paragraph 11 sets forth specific conditions upon which the Second Agreement may be terminated.

 As First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1012 (7th Cir. 1985), citing Consolidated Laboratories, 413 F.2d at 212, explains:

 If a contract is terminable upon the occurrence of some event, neither party may terminate at will.

 Looking at language nearly identical to that in Paragraph 11, First Commodity Traders, 766 F.2d at 1012 found:

 This paragraph sets forth a specific event upon which the contract may be terminated: breach. The circumstances and nature of the agreement indicate the parties' intent to create a relationship terminable for breach, rather than terminable at will.

 In like manner, when Paragraph 11(a) unequivocally gives one party the right "to give notice of termination" upon breach by the other party, it surely "indicate[s] the parties' intent to create a relationship terminable for breach, rather than terminable at will." And if that were not clear enough, Paragraph 11(d) states:

 For any breach other than a material breach, neither party shall have any right to terminate or cancel this agreement . . . .

 In short, the Second Agreement is plainly neither terminable at will *fn16" nor void for having the possibility of perpetual duration, nor does it limit American to only one renewal. Once more, the Second Agreement's Renewal Clause means precisely what it says: American has the "option to renew this Agreement for successive terms of three (3) years each."

 Unconscionability

 Likely aware of the untenability and hence this Court's certain rejection of its direct attack on the clear and unambiguous language of the renewal clause, Lake Forest aims its guns at another, but in the end equally unreachable contract target: It contends the Renewal Clause is unconscionable. And the sole reason that Lake Forest offers to that end is that the Renewal Clause gives American the option to "perpetually renew the Agreement" (P. Mem. 4). Lake Forest offers--and this Court also finds--no authority for the proposition that a perpetual contract is unconscionable on its face. As already discussed at length, Davis, 77 Ill. App. 3d at 1014, 397 N.E.2d at 219 unequivocally states that such agreements are lawful in Illinois.

 P. Mem. 4 suggests that because Lake Forest has no "meaningful choice" to terminate the contract or change its terms that the Second Agreement is unconscionable. If that were the law, every contract would be unconscionable, for the very idea of a contract is to bind the parties to their voluntarily-entered-into agreement. Wholly contrary to Lake Forest's suggestion, a party's lack of such a "meaningful choice" to change or to wipe out contract obligations does not mean that the party is somehow given an opportunity to ignore them.

 In re Estate of Croake, No. 1-90-2868, 218 Ill. App. 3d 124 1991 Ill.App. LEXIS 1304, at *5, 161 Ill. Dec. 209, 578 N.E.2d 567 -6 (1st Dist. July 26, 1991) (citation omitted) explains the Illinois law of unconscionability:

 To the extent that defendant also suggests this agreement was unconscionable, we note that a contract will be treated as unconscionable when it is so one-sided that only one under delusion would make it and only one unfair and dishonest would accept it. An unconscionable contract is one where a party has no meaningful choice and the terms are unreasonably favorable to the other party. *fn17"

  Furthermore, as Reuben H. Donnelley Corp. v. Krasny Supply Co., No. 1-89-2660, 1991 Ill.App. LEXIS 1083, at *6 (1st Dist. June 25, 1991) (citations omitted) states:

 Where the issue of unconscionability is alleged, the party alleging the unconscionability has the burden at trial to produce sufficient evidence of unconscionability.

 But Lake Forest has offered no evidence whatever to show that the Second Agreement is unconscionable. Indeed, all the facts support American. For example, Lake Forest negotiated the Second Agreement to make changes (plainly provisions that it viewed as favorable) to the terms of the First Agreement. It later agreed in the Amendment to modifications to the Second Agreement. Nothing indicates that it lacked meaningful choice in bargaining for the terms of the Second Agreement--though to be sure no contracting party is obligated to agree to further changes in a contract just because it has done so once before. In addition, the Renewal Clause that Lake Forest now claims is unconscionable was reviewed by the Lake Forest Board both before it approved the First Agreement and again before the Second Agreement, and the Board voiced no objection to the Renewal Clause at either time (Hodgkins Dep. 26).

 Lake Forest simply fails to offer any proof that the Agreement is so one-sided or oppressive to make it unconscionable. Lake Forest's claim of unconscionability seems to be based on the notion that if Lake Forest now perceives the bargain as a bad deal or "unfair" (Hodgkins Dep. 24), then it is unconscionable. But as Reuben H. Donnelley, id. at *8 states:

 [A] court will not set aside the contract merely because that agreement later turns out to be a bad bargain for one of the parties.

 And as In re of Croake, 218 Ill. App. 3d 124, 1991 Ill. App. LEXIS 1304, at *5, 161 Ill. Dec. 209, 578 N.E.2d 567 (citations omitted) explains:

 A court will not set aside a contract merely because the agreement is not a wise one from the standpoint of the party seeking rescission. Nor will a court set aside a contract merely because it is unfair.

 Nothing in the Second Agreement reveals the slightest hint of unconscionability. In fact the terms can hardly be described even as unfair, much less unconscionable. Second Agreement para 2(b)-(d) guarantees a minimum enrollment of American students, and American's fee to Lake Forest for each student enrolled is tied to tuition. Thus even if American chooses to renew the Agreement for many years to come, increases in Lake Forest's tuition will guarantee that American's fee to Lake Forest will be adjusted in its favor. *fn18" Contrast that with the situation of the lessor in a 99-year (or 999-year) lease providing for a fixed rental with no adjustment for the value of money--an agreement enforceable under Illinois law (see n.14).

 In short, the Second Agreement is indisputably not (In re Estate of Croake, id. at *5):

 so one-sided that only one under delusion would make it and only one unfair and dishonest would accept it.

 Merely because Lake Forest may now feel that the Second Agreement is not in its best interest, that is not at all a reason to find the arm's length contract unconscionable.

 Conclusion

 It is uncontestable that the Renewal Clause unambiguously provides American with the "option to renew" the Second Agreement "for successive terms of three (3) years each." It may renew that Agreement repeatedly, and as many times as it desires, by complying with the notice requirements found in that same Clause. Because there are thus no genuine issues of fact as to Lake Forest's claim for a declaratory judgment, American is entitled to judgment as a matter of law on that claim. This action is set for a status hearing at 9 a.m. October 3, 1991 to discuss further proceedings in the case in light of this opinion.


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.