The Journal of The DuPage County Bar Association

Back Issues > Vol. 28 (2015-16)

Contract Drafter Beware: Five Illinois Laws That Impact Contract Drafting and Enforcement
By Jonathan T. Linnemeyer

Contract Drafters Beware! Unforeseen and detrimental (or useful) Illinois laws may affect the enforceability of your contract. This article will review five lesser known Illinois laws that may cause a contract to be deemed unenforceable, void, or modified.

Illinois Automatic Contract Act. The Illinois Automatic Contract Renewal Act1 (the “Renewal Act”) covers contracts with Illinois consumers for the sale of, or offer of sale of, products or services where the “contract automatically renews unless the consumer cancels the contract….”2 Under the Renewal Act, the contract must disclose the automatic renewal clause “clearly and conspicuously in the contract, including the cancellation procedure.”3 Additionally, written notice of the automatic renewal must be provided to the consumer in accordance with the Renewal Act for a contract with an Illinois consumer for the sale of products or services where a contract term of 12 months or more is specified and where the contract term automatically renews for a specified term of more than one month unless canceled by the consumer.4 The written notice of the automatic renewal must be given between 30 and 60 days before the cancellation deadline, and the written notice must “disclose clearly and conspicuously: (i) that unless the consumer cancels the contract it will automatically renew; and (ii) where the consumer can obtain details of the automatic renewal provision and cancellation procedure….”5

The Renewal Act does not contain a definition for “clear and conspicuous,” however the Renewal Act was initially passed by the Illinois General Assembly with a requirement that the clause providing for automatic renewal be in 14-point bold font. For a discussion of the “clear and conspicuous” requirement, see the article written by Bart T. Murphy, titled Illinois
Automatic Contract Renewal Act – Amended to Require Written Disclosure Notice to Consumer of Automatic Renewal Contracts, and to Make Violation of Act a Violation of Consumer Fraud Act.6 A violation of the Renewal Act constitutes a violation under the Illinois Consumer Fraud and Deceptive Practices Act. 7 There is a safe harbor provision that sellers of goods and services can rely upon to avoid liability under the Illinois Consumer Fraud Act for inadvertent violations of the Renewal Act. A seller will not be liable under the Renewal Act if the seller is able to demonstrate that as part of its routine business practice that: (i) it has an established and implemented written policy for compliance with the Renewal Act; (ii) any failure to comply with the Renewal Act is the result of error; and (iii) where an error caused the seller to fail to comply with the act, a full refund or credit was given to the consumer covering amounts billed to the consumer from the date of the renewal until the next renewal or termination of the contract.8

There are exceptions to the applicability of the Renewal Act. The Renewal Act does not apply to “business-to-business” contracts or to contracts with banks, trust companies and other licensed or organized financial institutions.9 The Renewal Act also does not apply to a “contract that is extended beyond the original term of the contract as the result of the consumer’s initiation of a change in the original contract terms.”10

Contract Drafter Beware: Watch out for renewal provisions in contracts for the sale of goods or services to consumers. Use
14-point bold all-caps font for the renewal provision and the cancellation provision. Sellers of goods and services to Illinois consumers should be advised to have an established and implemented policy for compliance with the Renewal Act to avoid claims under the Illinois Consumer Fraud Act.

Illinois Construction Contract Indemnification for Negligence Act The Illinois Construction Contract Indemnification for Negligence Act11 (“Anti-Indemnity Act”) prohibits contract language that indemnifies a party from that party’s own negligence.12 The Anti-Indemnity Act covers public and private contracts for the “construction, alternation, repair maintenance of a building, structure, highway bridge, viaducts” and other work dealing with moving, construction, demolition and exaction.13 Provisions that are declared void and unenforceable by the Anti-Indemnity Act are covenants, promises and agreements to “indemnify or hold harmless another person from that person’s own negligence.”14

The Anti-Indemnity Act prevents: (i) intermediate indemnity provisions where an indemnitor assumes all of an indemnitee’s liabilities related to the parties’ agreement, except for the claims resulting solely from the indemnitee’s negligence; and (ii) broad indemnity provisions where the indemnitor assume all of an indemnitee’s liabilities related to the parties’ agreement, including claims resulting solely from the indemnitee’s negligence. The Anti-Indemnity Act only permits limited indemnity provisions where the indemnitor only assumes claims resulting from the indemnitor’s own negligence.

Contract Drafter Beware: When drafting indemnification provisions in construction contracts, use a carve-out indemnity
where the indemnitor agrees to indemnify the indemnitee for all claims, except to the extent caused by the indemnitee’s own negligence, to the extent permitted by law. This language complies with the Anti-Indemnity Act because it specifically excludes the types of indemnification prohibited by the act, and it is limited to covenants to indemnify permitted by law.

When reviewing an indemnity provision in a construction contract, or a lease that contemplates a build-out or other work
to be done at the subject premises, the Anti-Indemnity Act can be used as a basis to strike indemnification language that contains an intermediate indemnity or broad indemnity provision.

Illinois Covenant of Good Faith and Fair Dealing The Illinois Covenant of Good Faith and Fair Dealing requires that parties to a contract use good faith and fair dealing in the performance and enforcement of a contract.15 The Illinois Supreme Court articulated the principal of the Covenant of Good Faith and Fair Dealing stating that “[e very contract implies good faith and fair dealing between the parties to it, and where an instrument is susceptible to two conflicting constructions, one which imputes bad faith to one of the parties and the other one does not, the latter construction should be adopted.”16 Illinois recognizes and implies a covenant of good faith and fair dealing in every contract absent a specific provision or disavowal to the contrary.17

Illinois courts have been inconsistent over whether an independent cause of action for breach of contract can arise out of a breach of the implied duty of good faith and fair dealing. However, in Voyles v. Sandia Mortgage Corp., the Illinois Supreme Court declined to recognize a cause of action for breach of contract from a breach of the implied duty of good faith and fair dealing.18

When a contract is susceptible to two conflicting constructions, the implied duty of good faith and fair dealing is used as an aid to determine the intent of the parties, unless the implied duty of good faith and fair dealing is expressly disavowed.19 The duty of good faith and fair dealing is essentially used as a construction aid to determine the contractual intent of the parties where a contract term is capable of multiple constructions.20

Contract Drafter Beware: Where a contract is subject to multiple interpretations, the duty of good faith and fair dealing
will be used as a gap filling tool to resolve an issue between the parties that could not have been contemplated at the time of drafting but was not resolved explicitly between the parties. The duty of good faith and fair dealing cannot be used as a tool to modify provisions that are otherwise explicitly spelled out in a contract.

Illinois Sales Representative Act. The Illinois Sales Representative Act21 (“ISRA”) governs the payment of commissions to sales representatives upon the termination of a contract between a sales representative and a principal.22 The ISRA only covers principals engaged in the sale of goods (as opposed to services).23 The ISRA only applies to independent sales representatives, as opposed to employee sales representatives who can exercise rights under the Illinois Wage Payment and Collection Act to obtain final compensation. 24 No provision in a contract with an independent sales representative can waive the provisions of the ISRA.25

Under the ISRA, all commissions due to sales representatives at the time of termination of a contract between a sales representative and principal shall be paid within 13 days of the termination of the contract or within 13 days of the date
on which such commissions become due, whichever is first.26 There are serious penalties for a violation of the ISRA. A
principal that fails to comply with the provisions of the ISRA concerning timely payment of commissions after termination“shall” be liable for “exemplary damages” up to three times the amount of commissions owed to the sales representative, in addition to the sales representative’s reasonable attorneys’ fees and costs.27

Contract Drafter Beware: Contracts between independent sales representatives and principals engaged in the sale of products should include a provision that commissions due at the time of termination shall be paid within 13 days of the termination of the contract or within 13 days of the date on which such commissions become due. No provision of the contract should purport to extend the time the principal is allowed to pay commissions after termination or waive the provisions of the ISRA. The contract should be unambiguous as to: (i) when a commission becomes due to the sales representative; (ii) whether a commission is due when sales are booked or when payment is received; and (iii) how commissions are affected by change orders, returns, and nonpayment.

Illinois Home Repair and Remodeling Act. It is a violation of the Illinois Home Repair and Remodeling Act28 (“HRRA”) for a contractor to complete a home repair over $1,000 when the contractor does not obtain a written contract that complies with the HRRA or provide the homeowner with the consumer rights brochure mandated by the HRRA29.

Until the HRRA was amended in 2010, it was deemed“unlawful” for a contractor to complete a home repair over $1,000 without complying with the HRRA, and a contractor’s failure to comply with the HRRA could be used by the homeowner as a defense to a contractor’s collection action, despite the absence of actual damages to the homeowner. With the 2010 amendment to the HRRA, a person who suffers actual damages as a result of a violation of the HRRA may bring an action pursuant to Section 10a of the Illinois Consumer Fraud and Deceptive Practices Act.30

Contract Drafter Beware: The requirements of the HRRA are too numerous to list for the purposes of this article. Any
repair or remodeling work for over $1,000 should be done pursuant to a written contract that complies with the terms of the HRRA. Additional requirements apply to contracts for work done following damaging weather.31 Additionally, waiver of jury trial and binding arbitration provisions should only be made in accordance with the HRRA.32

Conclusion. This article is only able to highlight a few of the Illinois laws that affect the enforceability of contract provisions. Two laws that affect many Illinois contracts and debt instruments are the Illinois Interest Act,33 and the Illinois Uniform Commercial Code.34 An entire article could be written on these laws. When drafting any contract, be conscious of laws related to the subject matter of the contract and laws affecting the enforceability of the provisions of the contract.

1. 815 ILCS 601/1.
2. 815 ILCS 601/10(a).
3. Id.
4. 815 ILCS 601/10(b).
5. Id.
6. Bart T. Murphy, Illinois Automatic Contract Renewal Act – Amended to Require Written Disclosure Notice to Consumer of Automatic Renewal Contracts, and to Make Violation of Act a Violation of Consumer Fraud Act, 17 DCBA BRIEF 12 (Jan. 2005).
7. 815 ILCS 601/15.
8. 815 ILCS 601/10(c).
9. 815 ILCS 601/20(c)-(d).
10. 815 ILCS 601/20(e).
11. 740 ILCS 35/0.01
12. 740 ILCS 35/1
13. Id.
14. Id.
15. Perez v. Citicorp Mortg., 301 Ill. App. 3d 413, 424, 703 N.E.2d 518 (1998)
16. Martindel v.Lake Shore National Bank, 154 N.E.2d 683, 690 (1958).
17. Citicorp Savings of Ill. V. Rucker, 295 Ill.App.3d 801, 807, 692 N.E.2d 1319, 1324 (1st Dist. 1998)
18. Voyles v. Sandia Mortgage Corp., 196 Ill.2d 288, 295–98, 751 N.E.2d 1126 (2001).
19. Citicorp Savings of Ill. V. Rucker, 295 Ill.App.3d 801, 807, 692 N.E.2d 1319, 1324 (1st Dist. 1998)
20. Resolution Trust Corp. v. Holtzman, 248 Ill.App.3d 105, 187 618 N.E.2d 418, 424 (1st Dist.1993)
21. 820 ILCS 120/0.01, et seq.
22. 820 ILCS 120/2.
23. 820 ILCS 120/1(3).
24. 820 ILCS 120/1(4).
25. 820 ILCS 120/2
26. Id.
27. 820 ILCS 120/3
21. 820 ILCS 120/0.01, et seq.
22. 820 ILCS 120/2.
23. 820 ILCS 120/1(3).
24. 820 ILCS 120/1(4).
25. 820 ILCS 120/2
26. Id.
27. 820 ILCS 120/3
28. 815 ILCS 513/1, et seq.
29. 815 ILCS 513/15; 815 ILCS 513/20.
30. 815 ILCS 513/30
31. See 815 ILCS 513/18.
32. See 815 ILCS 513/15.1.
33. 815 ILCS 205/et seq.
34. 810 ILCS 5/et seq.

Jonathan T. Linnemeyer is an attorney with Lyons Law Group, LLC in Downers Grove, Illinois, concentrating his practice in business transactions, entity formation, mergers and acquisitions, and commercial real estate. Jonathan received his
Juris Doctor from Northern Illinois University College of Law in 2006 and his bachelor’s degree in Finance from the University of Illinois, Champaign-Urbana in 2003.

 
 
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