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Quality Oil, Incorporated v. Kelleypartners

September 19, 2011

QUALITY OIL, INCORPORATED, PLAINTIFF-APPELLEE,
v.
KELLEYPARTNERS, INCORPORATED, D/B/A THE OIL WORKS-ELGIN & THE OIL WORKS-BATAVIA, INCORPORATED, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08-cv-05006-Susan E. Cox, Magistrate Judge.

The opinion of the court was delivered by: Sykes, Circuit Judge.

ARGUED JANUARY 13, 2011

Before RIPPLE, EVANS , and SYKES,Circuit Judges.*fn1

In a loan-and-supply contract, Quality Oil, Inc., agreed to provide Kelley Partners, Inc., with a $150,000 loan that would be gradually forgiven over five years as Kelley Partners purchased specified quantities of motor-oil products from Quality Oil. Kelley Partners stopped buying products from Quality Oil after only two years, so Quality Oil sued for breach of contract. Quality Oil won on summary judgment, and Kelley Partners appealed.

The dispute focuses on the meaning of a handwritten notation the parties added to the typewritten contract. Kelley Partners interprets the handwritten provision to release it from all obligations after five years regardless of how much product it purchased from Quality Oil. This interpretation reads the handwritten provision in isolation and is commercially nonsensical. We affirm.

I. Background

On July 1, 2003, Quality Oil, an Indiana auto-lubricants distributor for Exxon Mobil Corp., and Kelley Partners, an independent operator of automotive quick-lube facilities in Illinois, entered into a "Product Payback Loan and Supply Agreement." Under the Agreement, which by its terms is governed by Indiana law, Quality Oil agreed to loan Kelley Partners $150,000 "at no cost," and Kelley Partners in turn agreed to purchase its motor-oil requirements from Quality Oil. Specifically, in Para-graph 4 of the Agreement, Kelley Partners agreed to*fn2 purchase from Quality Oil . . . at least eighty-five percent (85%) of [Kelley Partners'] requirements of motor oils during the term of this Agreement. [Kelley Partners] further agrees to purchase not less than two hundred twenty-five thousand (225,000) gallons of Mobil motor oil and 225,000 Mobil branded filters within 60 months from the date hereof.

Immediately following this language in the typewritten contract is the handwritten notation that is central to Kelley Partners' appeal. It states as follows: "This Supply Agreement will terminate after 225,000 gallons and 225,000 filters of Exxon/Mobil is purchased or 60 months, whichever comes first." The president of Kelley Partners and owner/general manager of Quality Oil initialed this handwritten provision and signed the Agreement in two places.

Paragraph 6 of the Agreement provides for a "Premature Termination Penalty." Under this provision, if Kelley Partners "chooses to prematurely terminate this Agree-ment (i.e. before [Kelley Partners] purchases 225,000 gallons under Paragraph 4), Quality Oil reserves the right to bill [Kelley Partners] . . . for the unamortized portion of the loan's value as provided on Exhibit A." Exhibit A explains how the Premature Termination Penalty was to be calculated:

The unamortized val[u]e of the loan will be calculated using 60 months as the term.

$150,000 60 months = $2,500.00 [per] month

Any premature penalty will be figured by multiplying the remaining months left on contract times $2,500.00.

i.e. 36 months left on contract x $2,500.00 = $90,000

Finally, Paragraph 7 of the Agreement, entitled "Assignment and Delegation," explains Kelley Partners' ...


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