Course-Of-Dealing Doctrine Applies In Non-UCC Cases

Focus On Contract Law

Sharp  Thinking

No. 159      Perspectives on Developments in the Law from Sharp-Hundley, P.C.      October 2018

 

Course-Of-Dealing Doctrine Applies In Non-UCC Cases

            By John T. Hundley, john@sharp-hundley.com, 618-242-0200

            The use of course-of-dealing practices to define contractual commitments is statutorily established in sales-of-goods cases governed by the Uniform Commercial Code (810 ILCS 5/1-303(d)-(g)), but may a party rely on such evidence in a case involving services not covered by the UCC?

            A recent case from the Appellate Court in Chicago – Wheeler Fin., Inc. v. Law Bulletin Pub. Co., 2018 IL App (1st) 171495 – makes clear that the answer is “yes”.

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            In Wheeler, plaintiff failed to receive a tax deed because the Chicago Daily Law Bulletin published an incorrect hearing date in the “take notice” required by 35 ILCS 200/22-20.  Plaintiff sued the Law Bulletin, claiming it had breached an oral contract or, in the alternative, an implied contract supplemented by a 15-year course of dealing.

            The Law Bulletin defended, contending the 15-year course of dealing established a duty for the plaintiff to advise the Bulletin of any errors upon the first of the required three publications.  According to the course of dealing alleged by the Bulletin, upon being so notified of an error, it would correct the error and run the corrected notice the required three times, without charge for the additional insertion.  Plaintiff did not bring the error at issue to the Bulletin’s attention in compliance with this alleged course of dealing.                                                                       

            Reviewing a jury verdict for the Bulletin, the Appellate Court first rejected an attempt by plaintiff to argue that the contract at issue actually was written and not supplemented by a course of dealing. 

            “The issues in any litigation are determined by the pleadings and an issue cannot be sustained by evidence absent a corresponding pleading,” the panel said.  “Having pleaded a cause of action for breach of an oral or implied contract between the parties that was supplemented by a 15-year course of dealing, Wheeler cannot now argue on appeal for recovery based on a different theory, i.e., for breach of an express written contract that was not supplemented or qualified by a course of dealing.”

            Having thus limited the issues to those pleaded, the panel ruled that Illinois follows Restatement (2d) of Contracts § 223 (1981) in non-UCC contract cases.  That section provides:

  • A course of dealing is a sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
  • Unless otherwise agreed, a course of dealing between the parties gives meaning to or supplements or qualifies their agreement.

Finding the Law Bulletin’s version of the course of dealing proven, the panel affirmed denial of the plaintiff’s motion for a directed verdict and the trial court’s ultimate judgment in the case.

The panel also approved a non-pattern jury instruction for use in such cases (there is no pattern instruction on point).  That instruction was:

A previous course of dealing may give meaning to or qualify an agreement.  Where the terms of a contract are doubtful or uncertain and the parties to it have, by their own conduct, placed a construction upon it which is reasonable, such construction may be considered by you.

Distribution Agreement Has Four-Year Limitation

            A distribution agreement for baked goods was a contract for the sale of goods subject to the Uniform Commercial Code’s four-year statute of limitations (810 ILCS 5/2-725), the Seventh Circuit U.S. Court of Appeals held recently.

            Ruling in Heiman v. Bimbo Foods Bakeries Dist. Co., 902 F.3d 715 (7th Cir. 2018), the court reached that result under Illinois law even though a choice-of-law clause in the contract at issue said New York law applied to interpretation of the contract.

            The panel rejected that clause, reasoning that whether the distribution agreement was a “contract for sale” was a question of statutory interpretation, not one of contract interpretation.  Looking to the law of the forum state (Illinois), it found that Illinois would view the contract as one for the sale of goods under the UCC if the contract “is predominantly for goods with services being incidental.”  Though the distribution agreement required a host of services to be performed, the court said the distribution agreement “easily qualifies as a contract for the sale of goods.”  

            Accordingly, the panel said the UCC limitations statute applied and the case was time-barred.

Unsigned Contract Can Have 10-Year Statute Of Limitation

            A contract can count as “written” for purposes of the statute of limitations (735 ILCS 5/13-206) even if the parties haven’t signed it, a panel of the Seventh Circuit U.S. Court of Appeals held recently.

            Ruling in Blanchard & Assoc. v. Lupin Pharm., Inc., 900 F.3d 917 (7th Cir. 2018), the court dealt with the situation where a client had received a law firm’s detailed retainer letter and paid two bills in accordance with it, but never signed or returned it.

            After accepting additional legal services and not paying for them, the client was sued seven years later and claimed suit was barred under Illinois’ five-year statute of limitations for unwritten contracts (735 ILCS 5/13-205).  However, the court responded that a “contract is deemed written for these purposes if parties are identified and all the essential terms are in writing and ascertainable from the instrument itself.”  Finding those terms met, the panel said suit was timely under the 10-year statute. 

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