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Echo, Inc. v. Whitson Co.

August 4, 1997




Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 93 C 4349 James B. Zagel, Judge.

Before Coffey, Manion, and Kanne, Circuit Judges.

Kanne, Circuit Judge.

Argued February 11, 1997

Decided AUGUST 4, 1997

In 1988, Power Tool Company (PTC) in Johnson City, Tennessee became a distributor for Echo, Inc., which manufactures outdoor portable power equipment. In 1992, however, the relationship went sour, and Echo terminated the distributorship agreement. Echo sued PTC to collect money still owed from equipment purchases, and PTC filed counterclaims based on alleged breaches by Echo. The District Court granted summary judgment for Echo on its claim, and we affirmed. Echo, Inc. v. Whitson Co., 52 F.3d 702 (7th Cir. 1995) (Echo I). The case now comes back to us for review of the District Court's resolution of PTC's counterclaims. The District Court granted summary judgment for Echo on one of PTC's counterclaims, dismissed two of the counterclaims for failure to state a claim, and entered judgment for PTC on the last counterclaim pursuant to an accepted offer of judgment under Federal Rule of Civil Procedure 68. PTC now appeals.

I. History

Three documents tell much of the story of this case. The first document is the distributorship agreement entered into by Echo and PTC in 1988. The second is a preseason purchase order that PTC made for equipment it would need for the 1993 selling season. We will refer to this document as the Spring Order. In August 1992, Echo's regional sales manager and PTC's president negotiated and signed the Spring Order, which requested Echo to deliver the equipment in installments over the period between December 1992 and July 1993. The third document is an October 15, 1992 letter to PTC from Echo's supervisor of customer service. The letter is addressed generically "To All Distributors" and mentions three enclosed computer reports "recapping your 1993 Spring Booking of Units and Accessories." The letter states that the computer reports should be helpful "when reconciling your order" and that "[i]t is extremely important to verify that the information on these reports matches your records" because "mistakes and omissions can sometimes occur" when entering the orders into the computer.

Despite this correspondence, Echo never shipped the goods PTC requested in the Spring Order. On October 30, 1992, PTC's account with Echo showed $241 of charges more than 30 days overdue. By November 30, however, PTC's account had an overdue balance of $131,218. In between these two dates, on November 17, Echo gave PTC a letter terminating PTC as a distributor, effective in 60 days. The letter states that PTC was being terminated based on lack of sales performance, the reduction in the size of your company by giving up a major line, the reduction of your sales staff (which will have a negative impact on ECHO penetration in the marketplace), the reduction in service training in the marketplace (which impacts dealer product knowledge) and the change in Power Tool's ability to adequately acquire financing to support the line without putting an undue burden on ECHO, INCORPORATED.

PTC did not take kindly to Echo's termination, telling Echo in a November 25 letter that PTC would treat any such termination as a breach of contract. Echo responded with a letter on December 1 reaffirming its intention to terminate the distributorship, and PTC responded with a December 4 letter threatening legal action. To avoid litigation, Echo reversed the termination. PTC never learned of the reversal, however, because Echo failed to communicate the news to PTC--a failure Echo claims was an inadvertent mistake. In December 1992, therefore, PTC was under the impression that it would no longer be a distributor when the termination took effect in January 1993.

As for PTC's outstanding balances and purchase orders, PTC's account was $216,000 overdue by December 1, 1992. PTC's Spring Order had requested the goods to start arriving during that December, but Echo advised PTC in a December 10 letter that it would deliver goods only on a C.O.D. basis because PTC's account was so delinquent. After that letter, PTC apparently neither asked that the Spring Order be delivered C.O.D. nor even inquired to Echo about the Spring Order. By March 1, 1993, PTC had an overdue balance of $222,000, some of which was more than 90 days overdue. On March 3, Echo gave PTC written notice that it was terminating PTC based on paragraph 8.2(C)(xi) of the distributorship agreement, which authorizes immediate termination "if Distributor becomes more than ninety (90) days in arrears in payment of its account." By June 1993, Echo and PTC were in court, and PTC filed the counterclaims we must consider here.

II. Analysis

A. Breach of Contract--Spring Order

PTC's first counterclaim alleges that Echo breached a contract based on PTC's Spring Order. More specifically, PTC contends that the Spring Order was an offer that Echo accepted either 1) when Echo's regional sales manager signed the order, or 2) when Echo sent PTC the recap of the order. The District Court denied PTC's motion for summary judgment on this counterclaim and instead granted summary judgment for Echo, finding that Echo never accepted the offer. Under Illinois law, *fn1 when the basic facts are not in dispute, the existence of a contract is a question of law. Cottingham v. National Mut. Church Ins. Co., 124 N.E. 822, 825 (Ill. 1919); Lewis-Connelly v. Board of Educ. of Deerfield Pub. Sch., Dist. 109, 660 N.E.2d 283, 285 (Ill. App. Ct. 1996); Yorke v. B.F. Goodrich, Co., 474 N.E.2d 20, 22 (Ill. App. Ct. 1985). Issues of contract formation are therefore particularly well-suited for disposition on summary judgment, and we review the District Court's grant of summary judgment de novo, see Malcak v. Westchester Park Dist., 754 F.2d 239, 243 (7th Cir. 1985).

PTC first argues that the signature of Echo's sales manager on the Spring Order constitutes an acceptance of PTC's offer. In its simplest form, this argument must lose because paragraph 5.3 of the distributorship agreement provides, "All orders for Products shall be subject to acceptance by [Echo] at Lake Zurich, Illinois" where its headquarters were located. PTC therefore embellishes its argument, suggesting that Echo waived ...

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