complaint, the defendants breached this contract by erroneously informing Horbach on October 3, 1990 that the option had expired. Rather than protesting the defendants' unilateral termination of the option agreement, Horbach instead began negotiating with Kaczmarek in November of 1990 for the purchase of Kaczmarek's stock for himself. Horbach and Kaczmarek eventually drafted a Stock Purchase Agreement and Horbach paid Kaczmarek a $ 580,000 deposit for his stock. Eventually, though, their negotiations broke down and Kaczmarek sold his stock in Shred Pax to someone else. Now, after Horbach was unable to purchase Kaczmarek's Shred Pax stock for himself, he complains about the breach of TyrRee's option to purchase the stock. Horbach's conduct of negotiating with Kaczmarek to purchase Kaczmarek's Shred Pax stock for himself constitutes a waiver of his right to purchase it on behalf of TyrRee pursuant to the Option Contract.
Horbach half-heartedly attempts to argue that waiver should not apply where the stock sale was not consummated. I find unsurprising Horbach's inability to cite any authority for this interesting proposition. It is the act of seeking to purchase the stock for himself which constitutes Horbach's waiver of his right to enforce the option contract. Whether Kaczmarek eventually agreed to Horbach's terms is irrelevant.
The defendants contend that Horbach's claim for fraud is barred by the statute of limitations. The statute of limitations for a fraud claim in Illinois is five years. 735 ILCS 5/13-205 (Smith-Hurd 1992). The defendants argue that Horbach's cause of action accrued on the date that the contract required the equipment to be delivered. Illinois courts, however, apply the "discovery rule" to this five-year limitations period for actions "that could be characterized as torts arising from the contract." Hermitage, supra, 651 N.E.2d at 1135. Thus Horbach has five years to file suit from the date he "[knew] or reasonably should [have] known that he has been injured and that his injury was wrongfully caused." Id. (quoting Jackson Jordan, Inc. v. Leydig, Voit & Mayer, 158 Ill. 2d 240, 633 N.E.2d 627, 198 Ill. Dec. 786 (1994)).
Horbach alleges that he did not discover his injury until he inspected the equipment in February, 1991. He therefore asks me to measure the five-year statute of limitations from that date, rendering this suit timely. Horbach's complaint also states, however, that Shred Pax informed Horbach and TyrRee that the equipment was ready for delivery and testing in April of 1990. Despite the defendants' attempts to schedule testing and inspection of the equipment, Horbach did not examine it for 10 months. Horbach alleges no reason for his failure to pursue his contracts rights earlier. He does not, for example, allege that the defendants stopped him from inspecting the equipment earlier. Had Horbach inspected the equipment when it was ready, or even shortly thereafter, he would have discovered his alleged injury prior to September of 1990. The imitations period is only tolled until the date on which Horbach "reasonably should know" the defendants' fraud. Because this complaint was not filed until September of 1995, his claim for fraud is barred. See, e.g., Fitton v. Barrington Realty Co., 273 Ill. App. 3d 1017, 653 N.E.2d 1276, 210 Ill. Dec. 814 (1st Dist. 1995) (action for fraud in a land contract overstating the acreage time-barred because if plaintiffs cared about the acreage of the property they were purchasing, they could have obtained a more detailed survey earlier).
Deposit on the Stock Purchase Agreement
In Counts VI and VII of his complaint, Horbach states claims for conversion and unjust enrichment. Shred Pax argues that these claims are barred by the doctrine of equitable application of payments. "The doctrine of equitable application of payments allows a creditor to apply payments received from a debtor, without instructions on how to apply the payments, to any account the creditor chooses." Airtite, A Division of Airtex Corp. v. DPR Limited Partnership, 265 Ill. App. 3d 214, 638 N.E.2d 241, 245, 202 Ill. Dec. 595 (4th Dist. 1994). In the present case, Horbach alleges that he paid $ 580,000 to Kaczmarek, not Shred Pax, as a deposit on an agreement to purchase Kaczmarek's Shred Pax stock. Kaczmarek was not a "creditor" of Horbach because Horbach did not owe Kaczmarek any money. At best, Horbach (as a shareholder of TyrRee) owed money to Shred Pax. Defendants have not established that Kaczmarek had any right to apply this money to TyrRee's debt to Shred Pax.
For the reasons stated above, Counts I, II, III, IV, and V will be dismissed with prejudice. Counts VI and VII remain.
Elaine E. Bucklo
United States District Judge
Dated: February 9, 1996