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Universal Scrap Metals, Inc. v. J. Sandman and Sons

February 28, 2003


Appeal from the Circuit Court of Cook County No. 01 L 4654 Honorable Lynn M. Egan and Mary A. Mulhern, Judges Presiding.

The opinion of the court was delivered by: Justice Gallagher


Plaintiff Universal Scrap Metals, Inc. (Universal), appeals from the trial court's dismissal of its complaint against defendants J. Sandman & Sons, Inc., Albert Sandman, Martin Vasquez, City Scrap Metal, L.L.C., and Glenn Thompson. Universal sued defendants for breach of contract and tortious interference with contract after J. Sandman & Sons, Inc. (S&S), sold a large portion of its assets to City Scrap Metal, L.L.C. (City Scrap). Universal alleged that the sale to City Scrap violated an agreement that granted Universal the right of first refusal to purchase, manage or operate S&S. The central issue in this appeal is whether the absence in the agreement of an express method of determining the price Universal would pay for S&S renders the right- of-first-refusal provision unenforceable. For the reasons that follow, we affirm the judgment of the trial court.

Universal, S&S and City Scrap were in the business of purchasing and reselling nonferrous scrap metals. On July 6, 1996, Universal and S&S executed a document titled "UNDERSTANDING BETWEEN J. SANDMAN & SONS, AND UNIVERSAL SCRAP METALS." At that time, Albert Sandman was the majority shareholder of S&S. Vasquez was a minority shareholder. Pursuant to the document, Universal was to provide S&S with a line of credit for use in purchasing scrap metals, and S&S was to sell its nonferrous scrap metal to Universal.

Paragraph 6 of the document stated:

"6. If at some future time the principal(s) of J. SANDMAN & SONS decide to sell, relinquish or limit participation in the business, it is agreed that Universal will have the `right of first refusal' to purchase, manage, or otherwise operate Sandman's business under mutually agreed upon conditions."

Universal's complaint alleged that the document constituted a valid and enforceable contract and that in March 2001, S&S breached paragraph 6 by selling virtually all of its operating assets to City Scrap without offering Universal a right of first refusal. Universal also alleged tortious interference with contract against City Scrap, Thompson and Vasquez.

S&S moved to dismiss Universal's complaint under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2000)), arguing that the right of first refusal is unenforceable as a matter of law because it does not contain a method to determine the price and terms of a sale of S&S to Universal but instead states that the terms would be "mutually agreed upon." Furthermore, S&S contended, the document was not a contract but rather a memorialization of its business association with Universal that could be terminated at any time. Vasquez adopted S&S's motion to dismiss. City Scrap and Thompson also moved for dismissal of the complaint, contending that paragraph 6 was too indefinite to be enforced.

In granting the motions to dismiss with prejudice, the trial court stated that the right of first refusal did not expressly state the method by which the parties could determine the terms of a sale. Acknowledging Universal's argument that a majority of courts have held that a right of first refusal does not need to expressly provide the price to be paid, the trial court noted that Illinois has not adopted the view that a right of first refusal implicitly means that the right is to be exercised based on the terms of a third-party offer. The trial court held that a right of first refusal "must contain some language which asserts the method of determining price" and noted that paragraph 6 provided for circumstances other than an outright sale of S&S to Universal. The court found the indefiniteness of the right-of- first-refusal provision to be dispositive and did not address the parties' remaining arguments.

After the trial court granted S&S and City Scrap's motions to dismiss, Universal filed a motion to reconsider and sought to amend its complaint to allege that the parties had orally agreed that Universal would be given the opportunity to match any purchase offer made by a third party. Universal's motion was denied. On appeal, Universal asks this court to reverse the trial court's rulings and remand for further proceedings.

A motion to dismiss under section 2-615 tests the legal sufficiency of a pleading, with all well-pleaded facts taken as true and reasonable inferences from those facts drawn in favor of the plaintiff. U.S. Fire Insurance Co. v. Zurich Insurance Co., 329 Ill. App. 3d 987, 1001-02, 768 N.E.2d 288, 299 (2002). The issue on appeal from the granting of a section 2-615 motion is whether the allegations in the complaint, viewed in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. U.S. Fire Insurance, 329 Ill. App. 3d at 1002, 768 N.E.2d at 299. The sufficiency of a complaint is a question of law, which we review de novo. U.S. Fire Insurance, 329 Ill. App. 3d at 1002, 768 N.E.2d at 299.

We first address the dismissal of Universal's breach of contract counts. *fn1 Universal alleged that it entered into a valid and enforceable contract with S&S. For a contract to be enforceable, its terms and provisions must enable the court to ascertain what the parties have agreed to do. Pritchett v. Asbestos Claims Management Corp., 332 Ill. App. 3d 890, 896, 773 N.E.2d 1277, 1282 (2002). As noted in Miller v. Bloomberg, 26 Ill. App. 3d 18, 19, 324 N.E.2d 207, 208 (1975), "price is an essential ingredient of every contract for the transfer of property and must be sufficiently definite and certain or capable of being ascertained from the contract between the parties, in order to make the contract capable of enforcement."

A right of first refusal need not specify the price and terms, as long as it provides a method whereby those factors may be ascertained. Kellner v. Bartman, 250 Ill. App. 3d 1030, 1035, 620 N.E.2d 607, 610 (1993). At the outset, we strongly reject Universal's contention that the placement of "right of first refusal" in quotation marks "was an express means of indicating that [the parties] intended to define that phrase as a term of art as it is known and used in the business world." A term of art is defined as "a word or phrase having a specific signification in a particular art, craft or department of knowledge; a technical term." Webster's Third New International Dictionary (1993). Terms such as "negligence," "attorney fees" and "dismissal with prejudice" need not be set off in quotation marks to carry legal meanings; rather, those meanings are implied. Conversely, the placement of a word or group of words in quotation marks does not magically create a term of art.

Universal points out that Illinois courts have not specifically addressed whether a right of first refusal must expressly state a method of determining price and asks this court to join the jurisdictions that hold that a right of first refusal implicitly means that the holder of the right is obligated to pay the price offered by a third party. See, e.g., Steinberg v. Sachs, No. 3D01-2429 ...

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