Court of Appeals of Illinois, First District, Second Division
UNION TANK CAR COMPANY, Plaintiff-Appellee and Cross-Appellant,
NUDEVCO PARTNERS HOLDINGS, LLC, Defendant-Appellant and Cross-Appellee.
from the Circuit Court of Cook County, Illinois. No. 16 L
2559 Honorable Diane M. Shelley, Judge Presiding.
PRESIDING JUSTICE MASON delivered the judgment of the court,
with opinion. Justices Lavin and Pucinski concurred in the
judgment and opinion.
1 Following a 2017 bench trial, plaintiff-appellee, Union
Tank Car Company (Union Tank), was awarded $1.27 million in
damages as a result of the breach of a lease guaranty by
defendant-appellant, NuDevco Partners Holdings, LLC
(NuDevco). On appeal, NuDevco challenges the verdict,
claiming the trial court erred by (i) concluding that Union
Tank's cause of action was not governed by the Uniform
Commercial Code (UCC) (810 ILCS 5/1-101 et seq.
(West 2016)), (ii) awarding Union Tank damages when Union
Tank failed to satisfy the UCC's condition precedent to
the recovery of damages, (iii) awarding damages to Union Tank
for anticipated blasting and future storage costs, and (iv)
admitting certain evidence, which, in turn, influenced the
amount of damages.
2 Union Tank cross-appeals from the trial court's refusal
to award the present value of lost future rent under the
lease and the trial court's deduction of $10, 000 from
Union Tank's petition for attorney fees.
3 For the reasons that follow, we affirm in part and vacate
5 In January 2003, Ponderosa Petroleum Company (Ponderosa)
entered into a lease with General Electric Railcar Services
Corporation (GE Railcar) for 47 railcars to carry crude
petroleum. In the ensuing years, the parties executed
numerous riders providing for lease terms ending between May
2017 and February 2020. On April 1, 2015, Associated Energy
Services, LLC (Associated Energy) assumed the obligation to
make payments under the lease, although Ponderosa remained a
party to the lease.
6 Associated Energy is a wholly owned subsidiary of NuDevco.
On March 3, 2015, NuDevco executed a guaranty in favor of GE
Railcar to pay Associated Energy's obligations under the
lease. The terms of the guaranty provided that NuDevco would
"absolutely, irrevocably and unconditionally guarantee
the full and prompt payment when due of all the obligations
*** due under the Leases, including, but not limited to,
rent, service charges, freight, railroad charges, *** [and]
cleaning charges *** together with all other sums which may
or shall become due and payable pursuant to the provisions of
the Leases, including, without limitation, any damages
resulting from the Lessee's failure to perform its
guaranty further provided that NuDevco would reimburse Union
Tank for all costs it incurred in enforcing the guaranty,
including reasonable attorney fees.
7 In September 2015, Union Tank acquired the lease, riders,
and railcars from General Electric Capital Corporation, which
owned or controlled (directly or indirectly) all of the
interest in GE Railcar.
8 On September 1, 2015, Associated Energy sent a notice of
termination of the lease to GE Railcar citing as
justification that the cars were approaching the end of their
permitted use to haul crude oil. No provision of the lease
authorized termination for this reason. At the same time,
Associated Energy also began returning the railcars to Union
Tank. Associated Energy discontinued rental payments as of
September 30, 2015, and returned all the leased cars to Union
Tank by December 2015. Union Tank then invoked the guaranty,
but NuDevco refused to honor it.
9 On March 10, 2016, Union Tank filed a complaint against
NuDevco alleging breach of the guaranty. The complaint
alleged that the reason given for Associated Energy's
termination of the lease was not valid per the lease terms
and NuDevco's refusal to comply with Union Tank's
demand for payment was a material breach of the guaranty.
10 At the bench trial, Union Tank presented evidence that
Associated Energy sent all of the leased railcars to a Union
Tank facility in Evanston, Wyoming, without first informing
Union Tank. Because that facility was unable to process that
number of cars, Union Tank transferred 39 of the 47 railcars
to a facility in Kansas, 2 of the cars to a facility in
Texas, and kept only 6 in Wyoming. The cars were cleaned at
those locations, at a cost of $137, 690.09, of which
Associated Energy paid only $60, 710. Union Tank also
incurred costs (known as "freight") in moving the
railcars from Wyoming to Kansas and Texas and
"switching" charges in connection with transporting
the cars. A switching charge is incurred when a car is
transported from a main line railroad and
"switched" to storage by way of a short-line
railroad or privately held yard.
11 Union Tank had to pay to store the cars after their
return, as it had excess inventory of those specific railcars
and could not market them to new customers. (Union Tank had
insufficient yard space to store the cars on its own and
generally shipped excess inventory to third-party railyards.)
Union Tank again incurred freight and switching charges in
shipping the cars from where they were cleaned to where they
were ultimately stored. Through the date of trial, Union Tank
incurred $192, 975.80 in freight costs, $9605 in
switching costs, and $41, 315.30 in storage charges.
12 As evidence to support these incurred costs, Union Tank
introduced invoices that it received from third parties.
While none of the third parties generating the invoices were
called to testify, Frederick Koenig, a 40-year Union Tank
employee currently serving as Union Tank's director of
fleet repair, testified that Union Tank receives freight
invoices through an Internet portal or via e-mail in the
ordinary course of its business. A Union Tank employee then
signs the invoice, whereupon it is routed to the accounts
payable department, which generates payment by check or
electronically. William Constantino, the general manager of
Union Tank's leasing business unit, testified that he
receives similar invoices for storage, switching, and
cleaning charges, which are checked for accuracy and then
sent to him for countersignature if above a certain amount.
According to Constantino, he receives these invoices during
the normal and typical course of his business activity
anytime Union Tank has ...