United States District Court, N.D. Illinois
February 12, 2004.
W.E. DAVIS, DONALD R. DAVIS, and W.E. DAVIS & SONS CONSTRUCTION COMPANY, INC, Plaintiffs
MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC., Defendants
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs, W.E. Davis, Donald R. Davis, and W.E. Davis & Sons
Construction Company, Inc. ("Davis Construction"), filed suit against
Defendant, Merrill Lynch Business Financial Services, Inc. ("Merrill
Lynch"), for breaching a financial services agreement. Presently before
the Court is Merrill Lynch's Motion for Summary Judgment on Counts I and
II. For the following reasons, that motion is Granted.
Summary judgment is appropriate when no genuine issue of material fact
exists and the moving party is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(c); Cincinnati Ins. Co. v. Flanders Elec. Motor Serv.,
Inc., 40 F.3d 146, 150 (7th Cir. 1994). "One of the principal purposes of
the summary judgment rule is to isolate and dispose of factually
unsupported claims or defenses. . . ." Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986). Thus, although the moving party on a motion for
summary judgment is responsible for demonstrating to the court
why there is no genuine issue of material fact, the non-moving party must
go beyond the face of the pleadings, affidavits, depositions, answers to
interrogatories, and admissions on file to demonstrate, through specific
evidence, that a genuine issue of material fact exists and to show that a
rational jury could return a verdict in the non-moving party's favor.
Celotex, 477 U.S. at 322-27; Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
254-56 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-87 (1986); Waldridge v. American Hoechst Corp.,
24 F.3d 918, 923 (7th Cir. 1994).
Disputed facts are material when they might affect the outcome of the
suit. First Ind. Bank v. Baker, 957 F.2d 506, 507-08 (7th Cir. 1992).
When reviewing a motion for summary judgment, a court must view all
inferences to be drawn from the facts in the light most favorable to the
opposing party. Anderson, 477 U.S. at 247-48; Popovits v. Circuit City
Stores, Inc., 185 F.3d 726, 731 (7th Cir. 1999). However, a metaphysical
doubt will not suffice. Matsushita, 475 U.S. at 586. If the evidence is
merely colorable or is not significantly probative or is no more than a
scintilla, summary judgment may be granted. Anderson, 477 U.S. at
The undisputed facts, for the purposes of this motion, taken from the
pleadings, and the parties' Local Rule 56.1(a) & (b) statements of
material facts (referred to herein as "Pl's 56.1" and "Defs 56.1") and
exhibits, are as follows.
On or about January 11, 2000, Merrill Lynch entered into a loan
agreement with Davis Construction called a Working Capital Management
Account*fn1 Loan and Security Agreement (the
"Loan Agreement"). Def's 56.1 ¶ 5. W.E. Davis and Donald R. Davis
executed unconditional guarantees in connection with the Loan Agreement.
Def.'s 56.1 ¶ 7. The original term of the Loan Agreement was to
expire on January 31, 2001. Def.'s 56.1 ¶ 6.
Davis Construction did not always maintain the requisite loan amount as
required by the terms of the Loan Agreement. PL's 56.1 ¶ 5. Merrill
Lynch honored checks written by Davis Construction from January 2000
through December 2000, even though the maximum credit line specified in
the loan agreement had been exceeded. Pl.'s 56.1 ¶ 7. Under the terms
of the Loan Agreement, Merrill Lynch had discretion as to whether it
would honor checks written by Davis Construction even where the maximum
amount of the loan had been exceeded. PL's 56.1 ¶ 8.
Sometime in late December 2000 or early January 2001, Merrill Lynch
determined that Davis Construction had non-bonded accounts less than 90
days old that amounted to $317,961.44. Therefore, according to the terms
of the Loan Agreement, the maximum line of credit available to Davis
Construction for this account amount was $254,369.15. Def.'s 56.1 ¶
11. On or around January 9, 2001, Davis Construction had outstanding loan
amounts from Merrill Lynch totaling $756,434.00. PL's Resp. to Def.'s
56.1 ¶ 13.
On January 11, 2001, Merrill Lynch notified Davis Construction that it
would not honor certain checks made by Davis Construction totaling
$85,693.32. Def.'s 56.1 ¶ 14. On January 12, 2001, Merrill Lynch
notified Davis Construction that it would not honor certain checks made
by Davis Construction totaling $36,091.70. Def.'s 56.1 ¶ 15. On
January 17, 2001, Merrill Lynch notified Davis Construction that it would
not honor certain checks made by Davis Construction totaling $50,025.83.
Def.'s 56.1 ¶ 16. At no time after January 2001 did Davis
Construction have access to its account line of credit with Merrill
Lynch. Pl.'s 56.1 ¶ 11.
On August 6, 2001 Merrill Lynch and Davis Construction entered into an
agreement called the "WCMA Termination and Payment Plan" (the "Original
Termination Agreement"). Def.'s 56. ¶ 17. On November 12, 2001,
Merrill Lynch and Davis Construction agreed to an amendment to the
Original Termination Agreement which adjusted the outstanding balance
payments that Davis Construction was to pay Merrill Lynch. Def.'s 56.1
¶ 19. Both the Amended Termination Agreement and the Original
Termination Agreement provided that the "[l]oan Documents shall continue
in full force and effect upon all of their terms and conditions."
Def.'s 56.1 ¶ 18, 20.
Section 1.1(r) of the Loan Agreement provides:
"Maximum WCMA Line of Credit" shall mean, as of any
date of determination thereof, an amount equal to the
less of: (A) $1,000,000 or (B) 80% of Customer's
Accounts and Chattel Paper, as shown on its regular
books and records (excluding accounts over 90 days
old, Accounts arising out of bonded jobs, retainage,
directly or indirectly due from any person or entity
not domiciled in the United States or from any
shareholder, officer, or emplyoee of Customer of any
Section 2.2(b)(i) of the Loan Agreement states:
Subject to the terms and conditions hereof, during the
period from and after the Activation Date to the first
to occur of the Maturity Date or the date of
termination of the WCMA Line of Credit pursuant to the
terms hereof, and in addition to WCMA Loans
automatically made to pay accrued interest, as
hereafter provided: (i) [Merrill Lynch] will make WCMA
Loans to Customer in such amounts as Customer may from
time to time request in accordance with the terms
hereof, up to an aggregate outstanding amount not to
exceed the Maximum WCMA Line of Credit. . . .
Section 2.2(c) of the Loan Agreement provides:
Notwithstanding the foregoing, [Merrill Lynch] shall
not be obligated to make any WCMA Loan, and may,
without notice refuse to honor any such request by
Customer, if at the time of receipt by [Merrill Lynch]
of Customer's request: (i) the making of such WCMA
Line of Credit would cause the WCMA Maximum Line of
Credit to be exceeded. . . . The making by [Merrill
Lynch] of any WCMA
Loan at a time when any one or more of said conditions
shall not have been met shall not in any event be
construed as a waiver of said condition or conditions
or of any Default, and shall not prevent [Merrill
Lynch] at any time thereafter while any condition
shall not have been met from refusing to honor any
request by Customer for a WCMA Loan.
Section 3.7(a) of the Loan Agreement states, in
No failure or delay on the part of [Merrill Lynch] in
exercising any right, power, or remedy pursuant to
this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, or the
exercise of any other right, power, or remedy. Neither
any waiver of any provision of this Loan Agreement or
any pf the Additional Agreements, nor any consent to
any departure by Customer therefrom, shall be
effective unless the same shall be in writing and
signed by [Merrill Lynch].
Lastly, Section 3.7(c) of the Loan Agreement states:
All notices and other communications required or
permitted hereunder shall be in writing, and shall be
either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier of
by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery,
facsimile transmission, or actual delivery of
certified mail, or one business day after delivery to
an Express Overnight Courier. Unless otherwise
specified in a notice sent or delivered in accordance
with the terms thereof, notices and other
communication in writing shall be given to the parties
hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of a
facsimile transmission, to the parties at their
respective regular facsimile telephone number.
Merrill Lynch is seeking summary judgment on both Count I and n of
Plaintiffs' Amended Complaint. Count I is a breach of contract claim for
unlawfully dishonoring checks in breach of the Loan Agreement, and Count
n is a breach of contract claim for wrongful termination of the Loan
According to Merrill Lynch, Count I should be dismissed because Davis
Construction failed to meet a condition precedent to the Loan Agreement.
Specifically, Merrill Lynch argues
that it was not obligated to issue any further loans when the total
amount Davis Construction owed Merrill Lynch exceeded the maximum line
of credit currently available.
A condition precedent is an "act that must be performed or an event
that must occur before a contract becomes effective or before one party
to an exiting contract is obligated to perform." Hardin, Rodriguez &
Boivin Anesthesiologists, Ltd. v. Paradigm Ins, Co., 962 F.2d 628, 633
(7th Cir. 1992). "Where a condition precedent is not satisfied, no breach
of contract for failure to perform occurs." Quantum Mgmt. Group, Ltd. v.
Univ. of Chicago Hosps., 283 F.3d 901, 906 (7th Cir. 2002).
Here, the Loan Agreement expressly states, in section 2.2(c), that
Merrill Lynch may refuse to honor any request for funds by Davis
Construction that would cause the maximum line of credit to be exceeded.
At the time Davis Construction made its request for funds, the maximum
line of credit, in accordance with section 1.1(r) of the Loan Agreement,
was $254,369.15, and Davis Construction's outstanding loan amounts was
$756,434.00. Plaintiffs have failed to present any affidavits,
depositions, answers to interrogatories, and admissions on file to
demonstrate to the contrary.
Davis Construction next argues that section 2.2(c) only applies when
the request for funds would cause the maximum line of credit to be
exceeded, and that the maximum line of credit was already exceeded when
the January requests for funds were not honored (Court's emphasis).
However, section 2.2(b)(i) of the Loan Agreement states that Merrill
Lynch may make loans to Davis Construction "up to an aggregate
outstanding amount not to exceed" the maximum line of credit. Section
2.2(b)(i), taken together with section 2.2(c), allow Merrill Lynch to
refuse to honor any request by Davis Construction for additional funds
when the maximum line of credit
was already exceeded. Accordingly, there is no genuine issue of material
fact that Davis Construction failed to satisfy a condition precedent to
the Loan Agreement; and Merrill Lynch was not obligated to honor the
three January requests for funds made by Davis Construction.
Davis Construction also contends that because Merrill Lynch exercised
its discretion under section 2.2(c) to honor checks in excess of the
maximum line of credit, Merrill Lynch had an implied duty of good faith
and fair dealing to exercise its discretion for the three January
requests for funds. See Beraha v. Baxter Healthcare Corp., 956 F.2d 1436,
1443 (7th Cir. 1992).
However, under Illinois law, non-waiver clauses are enforceable.
Monarch Coaches, Inc. v. ITT Indus. Credit, 818 F.2d 11, 13 (7th Cir.
1987). Further, although a good faith and fan-dealing provision is
implied in every Illinois contract, it "has never been an independent
source of duties for the parties to the contract." Principles of good
faith fill a gap when a contract is silent, but "[t]hey do not block use
of terms that actually appear in the contract." F.D.I.C. v. Rayman,
117 F.3d 994, 1000 (7th Cir. 1997) (citation omitted).
Here, the contract is not silent. Section 2.2(c) expressly states that
Merrill Lynch may provide funding to Davis Construction even if the
maximum credit line has been exceeded, without waiving its right to
refuse to honor any future request by Davis Construction if a condition
precedent has not been met. Moreover, section 3.7(a) of the Loan Agreement
provides that any failure of Merrill Lynch in exercising its rights under
the Loan Agreement shall not operate as a waiver of that right.
Therefore, no genuine issue of material fact exists showing that Merrill
Lynch either waived its rights under the Loan Agreement or was required
to honor the January requests for funding from Davis Construction under
an implied duty of good faith and fair dealing.
Davis Construction further claims that Merrill Lynch breached its duty
of good faith by canceling the contract after learning W.E. Davis lost
his sight and became legally blind. However, a party's motivation for
enforcing its contractual rights is immaterial. See Original Great Am.
Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273,
280 (7th Cir. 1992); In re Prima Co., 98 F.2d 952, 965 (7th Cir. 1938);
Herzog v. Leighton Holdings, 239 B.R. 497, 508 (N.D. Ill. 1999). In this
case, Merrill Lynch was entitled, according to section 2.2(c) of the Loan
Agreement, to refuse to honor Davis Construction's request for funding
when, as here, the maximum line of credit would be exceeded. Thus,
whether Merrill Lynch refused to honor
Davis Construction's requests because W.E. Davis was blind is
irrelevant. Davis Construction asserts that Merrill Lynch, by
consistently honoring checks written by Davis Construction that exceeded
the maximum credit limit for almost a year, impliedly waived its right to
refuse additional loan requests. In support of this proposition, Davis
Construction cites an unpublished opinion, Strauss v. Sullivan,
991 F.2d 800, 1993 WL 118068 (7th Cir. 1993) ("Strauss"). Under the
Circuit Rule of the United States Courts of Appeals for the Seventh
Circuit 53(b)(2)(iv)(a), the Strauss opinion may not be cited as
Parties to a contract may not lull each other into a false assurance
that strict compliance with a contractual duty will not be required and
then sue for non-compliance. In re Krueger, 192 F.3d 733, 740 n.3 (7th
Cir. 1999). In this case, Merrill Lynch did not lull Davis Construction
into a false assurance and then sue Davis Construction for exceeding its
maximum line of credit; instead, Davis Construction sued Merrill Lynch
for breaching the Loan Agreement. Furthermore, by the express terms of
section 2.2(c) of the Loan Agreement, Merrill Lynch reserved the right to
strictly enforce the terms of the contract. Accordingly, there is no
genuine issue of material fact
as to whether Merrill Lynch impliedly waived its right to refuse to
honor additional loan requests by Davis Constriction.
Plaintiffs further contend that Merrill Lynch never provided notice to
Davis Construction that a change in the maximum line in credit occurred.
Specifically, Plaintiffs claim that Davis Construction never received a
letter, dated January 9, 2000, that was sent by Merrill Lynch indicating
a change in the maximum line of credit. Thus, Davis Construction argues
it was not properly notified, as stated under section 3.7(a) of the Loan
However, the express terms of section 2.2(c) of the Loan Agreement
state that Merrill Lynch may refuse to honor a request for funding from
Davis Construction without giving notice. A lender is not required to
"give more advance notice of termination than its contract requires."
Kham & Note's Shoes No. 2, Inc. v. First Bank of Whiting,
908 F.2d 1351, 1358 (7th Cir. 1990). Therefore, whether Davis
Construction was notified in accordance with section 3.7(a) of the Loan
agreement of a change in the maximum line of credit is irrelevant.
According to Plaintiffs, the Loan Agreement was wrongfully terminated
before its January 31, 2001 expiration date. Specifically, Plaintiffs
argue that because the only purpose of the Loan Agreement was to provide
funding to for Davis Construction and Merrill Lynch failed to provide the
requested funding in January of 2001, Merrill Lynch terminated the line
of credit and the Loan Agreement.
The Loan Agreement, however, encompassed more than the line of credit
The Loan Agreement contains other provisions relating to the repayment of
funds and Merrill Lynch's rights to posted collateral. Moreover, as
discussed above, Merrill Lynch did not wrongfully terminate the Loan
Agreement by dishonoring Davis Construction's request for funding because
Merrill Lynch was acting within its rights, as defined in the Loan
Agreement. Finally, both the Original and Amended Termination Agreements
stated that the Loan Agreement shall remain in full force and effect.
Plaintiffs have not presented any affidavits, depositions, answers to
interrogatories, or admissions to the contrary. Therefore, Plaintiffs
have failed to demonstrate that a genuine issue of material fact exists
showing that the Loan Agreement was wrongfully terminated.
For the foregoing reasons, Merrill Lynch's Motion for Summary Judgment
on Counts I and II is granted.