United States District Court, N.D. Illinois
January 27, 2004.
ENGEL MACHINERY, INC, Plaintiff
WELLS FARGO EQUIPMENT FINANCE, INC., Defendant
The opinion of the court was delivered by: MATHEW KENNELLY, District Judge
MEMORANDUM OPINION AND ORDER
Engel Machinery Inc. has sued Wells Fargo Equipment Finance, Inc. for
breach of contract. Engel claims it is the third-party beneficiary of an
equipment financing agreement between Wells Fargo and Style Master, Inc.
under which Wells Fargo agreed to finance Style Master's purchase of five
injection molding machines from Engel. Engel delivered three of the
machines to Style Master, which filed for bankruptcy, and it claims Wells
Fargo owes it payment for those units.
Wells Fargo has moved for summary judgment, arguing that no enforceable
contract exists and that even if a contract exists, Engel is not entitled
to recover because it did meet the contract conditions for obtaining
financing. Engel responds that an enforceable contract exists between it
and Wells Fargo, and that even if the contract were not properly
executed, the doctrine of promissory estoppel requires Wells Fargo to pay
Engel for the delivered machines. For the reasons stated below, the Court
grants Wells Fargo's motion for summary judgment on Count 2
but denies it on Counts 1 and 3.
In the summer of 2001, Style Master negotiated with Engel to acquire
five injection molding machines with Wells Fargo to finance the
acquisition. On September 18, 2001, Wells Fargo provided Style Master
with a "lease purchase proposal" in which Wells Fargo set forth the terms
of its proposed financing arrangement. The proposal contemplated that
Wells Fargo would purchase three 1250 ton and two 800 ton machines and
would lease them to Style Master pursuant to specified terms. Later in
September, Wells Fargo submitted to Style Master a proposed "master
lease" and related documents. These included an "agreement of sale"
pursuant to which title to the machines would pass to Style Master after
it paid off the lease in full, and "pay proceeds" letters directing Wells
Fargo to disburse payment to Engel. Engel signed the master lease, but
there is no evidence that Wells Fargo ever signed it.
In addition, Engel and Wells Fargo negotiated a "remarketing agreement"
under which Engel agreed to attempt to resell or re-lease the machines if
Style Master defaulted on its payment obligations to Wells Fargo, and two
agreements (referred to by the parties as "holdback agreements") which
entitled Wells Fargo to hold back a portion of the purchase price as
security for Style Master's performance during the first twelve months of
the lease. The remarketing agreement recited that Wells Fargo "has
entered into or has agreed to enter into" a master lease with Style
Master "pursuant to which [Wells Fargo] will finance the acquisition" of
the machines. The holdback agreements stated that to induce Wells Fargo
to finance the equipment, Engel agreed that a payment consisting of 90%
of the total purchase price would be due from Wells Fargo on commencement
of the lease, in return for transfer of title to Wells Fargo, and that
a contingent payment of the remaining 10% would be due twelve
months later so long as Style Master had made the required payments under
the master lease. This amounted to a "holdback" of part of the purchase
price as a form of security for Style Master's satisfaction of its
obligations to Wells Fargo under the proposed lease. The remarketing and
holdback agreements were both signed by Engel and Wells Fargo, though
Wells Fargo disputes whether the person who purportedly signed on its
behalf had the authority to do so.
On December 7, 2001, Wells Fargo provided Engel with two signed letters
advising that Wells Fargo "has provided commitment[s]" to Style Master
for $1,794,890.40 (for three 1250 ton machines) and $890,168.00 (for two
800 ton machines), and stating that Wells Fargo's disbursement of funds
to Engel was subject to the terms and conditions of Wells Fargo's
commitment to Style Master, and was also subject to the delivery and
installation of the machines and their acceptance by Style Master. The
letters stated that the commitments would expire on December 26 and
December 28, 2001, respectively.
Two 750 ton machines (not 800 ton machines) were delivered by Engel to
Style Master on December 14 and 17, respectively. It is not clear exactly
when the installation took place; however, the machines were not accepted
by Style Master until January 14 and 31, 2002. A single 1250 ton machine
was delivered by Engel to Style Master on December 21, 2001; it was
installed and accepted by Style Master on February 4, 2002. The other two
1250 ton machines were never delivered. There is no evidence that Engel
or Style Master obtained a written extension of Wells Fargo's financing
commitments, which as set forth in its December 7, 2001 letters required
the installation and acceptance of three 1250 ton machines by December 26
and two 800 ton machines by December 28.
In mid-January 2002, Wells Fargo advised that it would not pay for any
of the machines. Wells Fargo's in-house counsel sent Engel's outside
counsel a letter on February 4, 2002 stating that the commitment had
expired before the machines had been installed and that Wells Fargo had
no obligation to pay for them. In March 2002, Style Master petitioned for
relief under Chapter 11 of the Bankruptcy Code.
Engel commenced this action against Wells Fargo in February 2003. Its
complaint contains three claims. Count 1 is a claim for breach of the
remarketing and holdback agreements, which Engel alleges amounted to a
promise by Wells Fargo to Engel to finance the purchase of the machines.
Count 2 is a claim for breach of the purported master lease between Wells
Fargo and Style Master, of which Engel claims to be a third part
beneficiary. Count 3 is a claim of promissory estoppel. Wells Fargo has
moved for summary judgment on all three claims.
Summary judgment is proper when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c). The Court must look at the evidence "as a jury might,
construing the record in the light most favorable to the nonmovant and
avoiding the temptation to decide which party's version of the facts is
more likely true." Payne v. Pauley, 337 F.3d 767, 770
(7th Cir. 2003). The Court's "function is not to weigh the
evidence but merely to determine if `there is a genuine issue for
trial.'" Bennett v. Roberts, 295 F.3d 687, 694 (7th Cir. 2002)
When, as in this case, "jurisdiction is based on diversity of
citizenship, the substantive rights of the parties are governed by state
law." Help at Home, Inc. v. Medical Capital, LLC, 260 F.3d 748,
753 (7th Cir. 2001) (citing Erie R.R. Co. v. Tompkins,
304 U.S. 64, 78 (1938)). Wells Fargo initially argued that it was entitled
to summary judgment on Count 2, Engel's claim for breach of the master
lease, on the grounds that the agreement had not been signed by Wells
Fargo and thus was unenforceable under the Illinois Credit Agreements
Act ("ICAA"). See Def.'s Mot. at 4 ("Thus, this statute
precludes Engel from asserting any claims based on agreements between
Wells Fargo and Style Master, to which Engel was not a party, i.e.,
Engel's third party beneficiary claim in Count II of the Complaint.").
Though Wells Fargo's memorandum and its reply memorandum later attempted
to conflate Counts 1 and 2, the ICAA argument does not apply to Count 1
for the reasons discussed later. We will therefore begin our analysis
with Count 2.
1. Count 2 (claim based on master lease)
The master lease was supposed to be signed by both Wells Fargo and
Style Master but evidently did not end up being signed by Wells Fargo.
Wells Fargo says that the master lease is a "credit agreement" within the
meaning of the ICAA, see 815 ILCS 160/1(1), and thus is not
enforceable against Wells Fargo, the purported creditor, because it did
not sign. See id. 160/2. Engel responds that the ICAA does not
apply because the master lease contained a choice of law provision
electing Minnesota law. But that is circular reasoning; it assumes the
lease is enforceable against Wells Fargo in the first place. Before we
can enforce any of the lease's terms, including the choice of law
provision, we must determine whether the lease is enforceable against
Engel. Illinois enforces a choice of law agreement only if it is
contained in a valid
contract. See Kohler v. Leslie Hindman, Inc.,
80 F.3d 1181, 1185 (7th Cir. 1996).
Before deciding whether the agreement is valid, we must determine which
state's law governs that question. In federal cases, a federal court
generally applies the forum state's choice of law rules. See Klaxon
Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Illinois
courts apply the "most significant relationship" test for deciding among
conflicting laws. Esser v. Mclntyre, 169 Ill.2d 292, 298,
661 N.E.2d 1138, 1141 (1996). The Court need not, however, address the
various factors included in that test. Because neither party has argued
that Illinois' choice of law, rules (as opposed to the choice of law
provision in the contract that is of disputed validity) require
application of the substantive law of another state, the Court properly
evaluates the contract's validity under Illinois law. ECHO, Inc. v.
Whitson Co., 52 F.3d 702, 707 (7th Cir. 1995).
The ICAA bars an action on, or in any way related to, a credit
agreement unless it is in writing and signed both by the debtor and the
creditor. 815 ILCS 160/2. Engel is a debtor under the ICAA; the statute
defines "debtor" as "a person who obtains credit or seeks a credit
agreement or claims the existence of a credit agreement with a
creditor or who owes money to a creditor." Id. 160/1(2). As
Engel claims that the master lease amounts to an agreement by Wells Fargo
to extend credit for the purchase of the machines from Engel, the ICAA
bars its enforcement absent Wells Fargo's signature. Help at
Home, 260 F.3d at 755 (ICAA "requires the signature of both parties;
the signature of only one party renders the agreement unenforceable").
The parties spend most of their effort addressing whether under the
ICAA, the credit agreement itself must be signed or whether, as is the
case with Illinois' general statute of frauds,
the creditor's signature on a related writing can suffice. This
question has not been answered by the Illinois courts, and the Seventh
Circuit sidestepped it in Help at Home, finding the documents
that the creditor had signed in that case insufficiently related to the
credit agreement even under the statute of frauds' broader test. See
id. at 756-57. But the parties have, for the most part, wasted their
breath on this point. Even were it enforceable against Wells Fargo, the
master lease does Engel no good in this case. The lease does not impose
any obligation on Wells Fargo to pay anyone anything; rather it provides
the terms for Style Master to pay Wells Fargo. That does not assist Engel
on a claim that Wells Fargo should be required to pay Engel for the
machines that it delivered to Style Master. Thus the Court need not
address the knotty ICAA issue posed by the parties; Wells Fargo is
entitled to summary judgment on Count 2 because the master lease, even if
enforceable under the ICAA, does not entitle Engel to payment from Wells
2. Count 1 (claim based on "holdback agreement" and remarketing
Count 1 is a different matter. That claim is based on two separate
documents, the so-called "holdback agreements" and the remarketing
agreement. The latter agreement does not do any more for Engel than did
the master lease; it imposes no obligation on Wells Fargo to pay Engel or
anyone else, but rather addresses what happens if Style Master defaults
on its obligations under the master lease.
The somewhat inappropriately-named "holdback agreements," however,
squarely impose upon Wells Fargo an obligation to pay for the machines.
There are two such agreements, one for each group of machines. Each
states that an amount, equal to 90% of the total purchase price, will be
due from Wells Fargo on commencement of the lease in return for transfer
of title to Wells Fargo, and that the remaining 10% will be due from
Wells Fargo twelve months later as
long as Style Master has made the payments required under the
lease. Each is signed by a representative of Wells Fargo; though Wells
Fargo disputes this person's authority to sign, there is evidence from
which a fact finder reasonably could find that apparent authority
existed. The ICAA thus does not bar enforcement of these agreements. The
other point argued by Wells Fargo, an unexplained change in the name of
the Engel entity identified in the agreements, does not entitle it to
summary judgment: there is a genuine issue as to whether the entity named
in the agreements is a different legal entity from the plaintiff in this
For these reasons, Wells Fargo is not entitled to summary judgment on
3. Count 3 (promissory estoppel)
Wells Fargo's summary judgment motion on Count 3 is premised on the
proposition that a claim of promissory estoppel cannot be used to evade
the requirements of the ICAA. Because the Court has determined that the
ICAA does not bar enforcement of at least one of the alleged agreements
relied upon by Engel, summary judgment on this basis would be
inappropriate as to Count 3.
For the reasons stated above, the Court grants Wells Fargo's motion for
summary judgment as to Count 2 but denies the motion as to Counts 1 and
3. The case is set for a status hearing on February 4, 2004 at 9:30 a.m.
for the purpose of setting a trial date. Trial counsel are directed to
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