The Complex Commercial Litigation Law Review: USA - Illinois
As is true in many jurisdictions in the United States, Illinois contract law is largely composed of two sources of law: common law – that is, judge-made precedent – and statutes concerning certain types of contracts, such as the Illinois Uniform Commercial Code, which governs the sale of goods. Although not as specialised as courts in Delaware or New York, Illinois courts consider a large number of commercial cases each year and have produced a significant body of relevant case law. In general, Illinois courts have recognised a long tradition of upholding the right of parties to enter freely into contracts, especially when a case involves sophisticated parties on both sides of the transaction. But they also recognise a number of common law doctrines designed to protect parties of unequal bargaining power, and readily enforce statutes governing particular types of contracts that modify or supplement background common law principles. The following chapter presents an overview of key concepts under Illinois contract law, starting with the basics of contract formation.
i Basic elements: offer, acceptance, and consideration
Illinois courts define a contract as 'an agreement between competent parties, upon a consideration sufficient in law, to do or not to do a particular thing'. To be a valid contract, there must be an 'offer, acceptance, and consideration; to be enforceable, the agreement must also be sufficiently definite so that its terms are reasonably certain and able to be determined'. The party seeking to enforce a contract has the burden of proving that the contract was legally formed.
An offer must contain sufficiently detailed material terms so that 'the promises and performances to be rendered by each party are reasonably certain'. An acceptance occurs when the offeree communicates a 'meeting of the minds' or 'mutual assent'. Illinois courts follow the common law rule that 'it is not necessary that the parties share the same subjective understanding as to the terms of the contract'. A valid contract requires only an objective manifestation of mutual assent.
The acceptance 'must comply strictly with' the terms of the offer; if not, it will be construed as a rejection and counteroffer. An acceptance is invalid if the parties have 'fail[ed] to agree upon an essential term of a contract,' because 'the mutual assent required to make a contract is lacking'. The test for determining whether a term is 'essential' or 'material' is whether 'under proper rules of construction and principles of equity', the court can 'ascertain what the parties have agreed to do' and find a 'basis for deciding whether the agreement has been [breached]'. The price and nature of an item to be delivered are common examples of essential terms.
Illinois defines consideration as the 'bargained-for exchange of promises or performances … [which] may consist of a promise, an act or a forbearance'. Illinois courts generally will not inquire into the adequacy of the consideration, which is 'within the exclusive dominion of the parties where they contract freely and without fraud' unless the sufficiency is 'so grossly inadequate as to shock the conscience' or the promise of one party is illusory—that is, when 'closer examination reveals that the promisor has not promised to do anything'. In this vein, one cannot provide valid consideration by '[p]erforming an act that one is legally obligated to do . . . because there is no detriment'. Additionally, in Illinois, as in most jurisdictions, there is no valid contract if 'the alleged consideration for a promise has been conferred prior to the promise upon which [the] alleged agreement is based'. In other words, past consideration is no consideration at all.
Illinois law generally supports the modification of contracts. 'Ordinarily, parties are as free to change a contract after making it as they were to make it in the first place' as long as the modification does not 'violate the law or public policy'. A modification is defined as 'a change in one or more aspects of [the contract] that introduces new elements into the details or cancels some [provisions] but leaves the general purpose and effect of the contract intact'. A modification is its own contract, and there must be a valid offer, acceptance, and consideration for it to be valid. In Illinois, 'the terms of a written contract can be modified by a subsequent oral agreement even though . . . the contract precludes oral modifications', but only if the parties agree that they actually intended to modify the contract.
iii Oral contracts and implied-in-fact contracts
In general, oral contracts are 'binding so long as there is an offer, an acceptance, and a meeting of the minds as to the terms of the agreement'. Similarly, courts can find that a contract is implied in fact if all of the elements of an express contract can be inferred from the facts and conduct of the parties, rather than from an oral or written agreement. However, Illinois has adopted the traditional statute of frauds, which requires a formal, written contract for specific subjects. Although Illinois is one of three states that have not adopted the Uniform Electronic Transactions Act, it has provided by statute that '[i]nformation, records, and signatures shall not be denied legal effect, validity, or enforceability solely on the grounds that they are in electronic form'. It is important to note, however, that these electronic signatures are not valid for negotiable instruments.
iv Third-party beneficiaries
Illinois courts recognise third-party beneficiaries to a contract, but only under certain circumstances. In general, 'Illinois follows the 'intent to benefit' rule; that is, [determining] third-party beneficiary status is a matter of divining whether the contracting parties intended to confer a benefit upon a nonparty to their agreement'. Under this approach, 'there is a strong presumption that parties to a contract intend that the contract's provisions apply to only them and not to third parties. In order to overcome that presumption, the implication that the contract applies to third parties must be so strong as to be practically an express declaration'. To determine whether this presumption has been overcome, courts consider the contract's language and surrounding circumstances at the time of the agreement's execution; circumstances after the execution of the contract are generally irrelevant. In addition, many Illinois courts have said that there must be 'an express provision in the contract identifying the third-party beneficiary by name or by description of a class to which the third party belongs'. If a recognised third-party beneficiary is intended to benefit directly from the performance of the contract, then the beneficiary may sue to enforce the agreement.
v Alternative frameworks for relief
Illinois, like many jurisdictions, recognises a number of situations where a party can seek relief even if there is no express or implied-in-fact contract. The four most common claims under these circumstances are unjust enrichment (also known as an 'implied-in-law contract' or 'quasi-contract' claim), quantum meruit, promissory estoppel, and equitable estoppel.
Unjust enrichment and quantum meruit claims are similar, but have different measures of damages. Under both theories, 'the plaintiff must show that valuable services or materials were furnished by the plaintiff [and] received by the defendant, under circumstances which would make it unjust for the defendant to retain the benefit without paying'. But in a 'quantum meruit action, the measure of recovery is the reasonable value of work and material provided, whereas in an unjust enrichment action, the inquiry focuses on the benefit received and retained' by the defendant.
Promissory estoppel and equitable estoppel are also similar. Under both theories, one party 'reasonably induces [the other] to rely on his representations, and leads [the other], as a result of that reliance, to change his position to his injury'. The key distinction is that 'promissory estoppel requires proof of an unambiguous promise, [while] equitable estoppel does not'.
All of these claims may be pleaded in the alternative to claims that the defendant breached an express or implied-in-fact contract. But plaintiffs must take great care in how they structure their pleadings. Some Illinois courts have dismissed claims for alternative forms of relief because the complaint incorporated by reference allegations that there was an express or implied-in-fact contract. In one case, for example, the plaintiff incorporated by reference the allegations it used to support a claim for breach of an express oral contract into its claim for unjust enrichment. The court held that it was appropriate to dismiss the unjust enrichment claim under these circumstances because unjust enrichment is available only where there is no express contract (either written or oral) covering the same general subject matter as the performance at-issue. Practitioners in Illinois therefore should think carefully about whether and to what extent a claim should incorporate by reference allegations set forth earlier in the pleading.
The 'principal objective' of contract interpretation in Illinois is 'to determine and give effect to the intention of the parties at the time they entered into the agreement'. When the parties dispute the meaning of a contractual provision, 'the threshold issue is whether the contract is ambiguous'. If a contract is not ambiguous, the court will give its terms their 'plain, ordinary and popular meaning', and extrinsic evidence about the meaning of the agreement is inadmissible. In this situation, the court will 'follow the 'four corners' rule', which holds that 'an agreement, when reduced to writing, . . . speaks for itself, and the intention with which it was executed must be determined from the language used. It is not to be changed by extrinsic evidence'.
On the other hand, if the contract's language is 'susceptible to more than one meaning,' or 'is obscure in meaning through indefiniteness of expression,' then the contract is ambiguous. But '[a]n ambiguity is not created simply because the parties disagree about the interpretation'. The question of ambiguity is a legal one for the court to decide. If a court determines that the contract is ambiguous, then it may use traditional 'rules of construction' and 'consider extrinsic evidence to determine the parties' intent'. In efforts to resolve ambiguities, Illinois courts have considered the conduct of the parties, prior and contemporaneous transactions, the relationship of the parties, the facts and circumstances that existed when the parties entered the contract, established custom of the parties, and trade usage. If, after considering extrinsic evidence, 'doubt still remains as to the meaning of the contract, then the question of interpretation must be left to the trier of fact'.
Where there is a conflict between two provisions, they 'will be reconciled if possible so as to give effect to [both]'; otherwise 'the more specific provision relating to the same subject matter controls over the more general provision'. But courts cannot simply strike the more inconvenient of two conflicting provisions. Additionally, 'contract provisions and terms are to be interpreted as a whole and not in isolation,' so 'as to give effect to all of the contract's provisions' and not 'nullify or render provisions meaningless'. This is because 'it is presumed that all provisions were intended for a purpose'.
i Contractual provisions regarding forum selection
A forum selection clause is prima facie valid under Illinois law, and it will be enforced 'unless the opposing party demonstrates that enforcement 'will be so gravely difficult and inconvenient that [the opposing party] will for all practical purposes be deprived of [its] day in court'. Courts will assess the validity of a forum-selection clause by evaluating six factors: '(1) the law governing the formation and construction of the contract; (2) residency of the parties; (3) location of execution and performance of the contract; (4) location of the parties and witnesses; (5) the inconvenience to the parties of any particular location; and (6) whether the parties bargained for the clause'. The sixth factor is weighed heavily, because courts are 'particularly reluctant to void a forum-selection clause on inconvenience grounds where both parties freely entered the agreement contemplating such inconvenience'. If the contract was reached through 'arm's-length negotiation between experienced and sophisticated businesspeople', courts will enforce the clause 'absent some compelling and countervailing reason' to the contrary.
One exception to Illinois courts' general practice of enforcing forum-selection clauses is a construction contract that is performed in Illinois. As a matter of public policy, the Illinois Construction Act invalidates any forum-selection or choice-of-law provision in such a contract if it requires dispute resolution to take place in another state.
Subject to that exception, it is otherwise difficult to invalidate a forum-selection clause under Illinois law. A plaintiff cannot avoid the selected forum by pleading 'alternative non-contractual theories of liability' if the claims arise out of the parties' contractual relationship. Additionally, a mere allegation of fraud is insufficient 'to invalidate [a forum-selection clause]'; the fraud alleged 'must be specific to the forum-selection clause itself'.
ii Contractual agreements to waive defences or to resolve disputes through alternative dispute resolution
In addition to forum-selection clauses, Illinois courts will enforce contractual provisions that waive defences in litigation, as well as agreements that require alternative dispute resolution, like arbitration. In particular, Illinois law provides that a written agreement to submit a dispute to arbitration 'is valid, enforceable and irrevocable save upon such grounds as exist for the revocation of any contract'. Whether the parties in fact agreed to arbitrate their dispute is determined by ordinary principles of contract law. Illinois courts recognise there is a strong policy (at both the state and federal level) favouring arbitration, and they generally enforce arbitration clauses. In fact, in Cook County, where Chicago is located, even without a contract term, the local court rules require arbitration for certain commercial claims seeking less than US$75,000 in damages.
Breach of contract37
To prove a breach of contract claim in Illinois, a party must show that a valid and enforceable contract exists, that the contract was breached by the defendant, that the non-breaching party performed its obligations, and that the breach caused an injury to the non-breaching party.
In general, a party seeking to recover for a breach of contract must show that it substantially performed its obligations under the contract or had a sufficient excuse for failure to perform. 'What constitutes substantial performance is difficult to define, and whether substantial performance occurred will depend upon the relevant facts of each case'. Illinois courts look to factors such as: whether there has been a 'receipt and enjoyment' of contractual benefits by one party, or whether one party has 'honest[ly] and faithful[ly]' upheld the material portions of an agreement with 'no willful departure' from those essential provisions.
Parties to a contract are held to an implied covenant of good faith and fair dealing. Under this duty, parties executing an agreement must use reasonable discretion and act with proper motive. Discretion cannot be employed arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties. The obligation of good faith and fair dealing is applied across the board in all Illinois contract cases, regardless of whether or not it is specified in the disputed agreement.
Under Illinois law, anticipatory repudiation occurs when a party clearly indicates an intent not to fulfil its contractual obligations on the date of the agreed-upon performance. Illinois courts strongly emphasise that the repudiating party must be 'definite and unequivocal' in manifesting non-performance of the agreement. Ambiguous statements do not suffice. As a response to the anticipatory breach, the non-repudiating party may stop performance of the contract or may continue to perform and subsequently sue for damages.
Defences to enforcement
A party may defend against a breach of contract claim in Illinois on several grounds.
i Statute of limitations period expired
The statute of limitations period for a breach of contract claim in Illinois depends on the type of contract at issue. For a written contract (not involving the sale of goods), the limitations period is ten years. For an oral contract (not involving the sale of goods), the limitations period is five years. For a contract involving the sale of goods, the limitations period is four years, but the parties may agree to shorten the limitations period to not less than one year (they cannot extend it). When multiple statutes of limitation arguably apply to a claim, Illinois courts will analyse the statutory language against the subject matter of the claim, and apply the statute that 'more specifically relates to the [cause of] action'.
A breach of contract claim begins accruing at the time of the breach, not when a party sustains damages. However, where one promises to render performance 'on demand' or at a specified time after demand, the statute of limitations does not begin to run until the demand is made.
ii Lack of consideration
As explained above, an enforceable contract requires consideration. In Illinois, sufficient consideration is '[a]ny act or promise which is of benefit to one party or disadvantage to the other'. Illinois courts generally will not inquire into the adequacy of consideration, only its existence. One exception to this rule is a non-compete agreement in the employment context. This exception is based on a recognition that 'a promise of continued employment may be an illusory benefit where the employment is at will'. Illinois courts have generally held that two years or more of continued employment constitutes adequate consideration, but they nevertheless evaluate the adequacy of consideration on a case-by-case basis.
iii Enforcement is contrary to public policy
A contract contrary to public policy can be voided. Illinois courts, however, have a 'long tradition' of protecting the interests of parties who 'freely contract' with one another, and thus rarely void contracts on public policy grounds. The burden rests on the party alleging the breach to show that the agreement is 'clearly contrary to what the constitution, the statutes, or the decisions of the courts have declared to be the public policy'. Alternatively, the non-breaching party may prove that the agreement is 'manifestly injurious to the public welfare'. Illinois courts have applied § 178 of the Restatement (Second) of Contracts when evaluating whether a contract contravenes public policy. Under the Restatement approach, a contract term may be unenforceable due to legislation that renders it unenforceable or due to it being 'clearly outweighed in the circumstances by a public policy'. For example, in a recent Illinois case, the court held that a confidentiality provision in a contract was void as against public policy because it was designed to conceal the parties' prior and continuing misrepresentations to third parties (including third-party banks) about ownership changes that might have resulted in a default under other agreements.
iv Duress and undue influence
Illinois courts will not enforce agreements entered into by an individual under duress. Economic duress or 'business compulsion' occurs when one party compels another party to enter into a contract by using wrongful acts or threats. An act is wrongful when it is contrary to moral sensibilities or when it is 'criminal, tortious, or in violation of a contract duty'. Economic duress goes beyond 'mere hard bargaining or the pressure of financial circumstances'. Rather, a claim of duress implies that, if not for the wrongful act, the agreement 'would have been avoided'.
Illinois courts also will not enforce agreements entered into by parties subject to 'undue influence'. Undue influence is a form of duress where one party presents 'an improper urgency of persuasion' to the extent that the other party is 'induced to do or forbear an act' that she otherwise would or would not do. The standard for undue influence is fact-dependent, and Illinois courts do not have a fixed threshold for determining whether a party was unduly influenced.
v Impossibility or impracticality
In general, Illinois courts will seek to uphold agreements 'where parties, by their own contract and positive undertaking, create a duty or charge upon themselves'. '[C]ontingencies, not provided against in the contract, which render performance impossible, do not bring the contract to an end'. However, the parties' contractual duties may be suspended when a condition, thing, or person necessary for the execution of the contract no longer exists. To invoke an impossibility defence, a party must have tried all practical alternatives and the cause of the impossibility cannot have been anticipated. The party also cannot have created the circumstances that gave rise to the impossibility. The contract must be objectively impossible to perform; subjective, 'personal inability' to perform does not absolve a party of its contractual obligations. Although Illinois courts recognise impossibility and impracticability as defences to the enforcement of a contract, there are few published cases in which the defences were successful.
vi Frustration of purpose
Frustration of purpose – or 'commercial frustration' – occurs when a change in circumstances undermines the reasons behind performing a contract. To prove frustration of purpose, a party must show that reasonably unforeseen circumstances made it impossible for the party to uphold the agreement or that the unforeseen circumstances destroyed the party's expected contractual benefits. The parties must have entered into the contract knowing that performance of the contract was predicated on the existence of the circumstances that later changed. The party alleging frustration of purpose must also show that the unforeseen circumstance 'totally or nearly totally destroyed [the value of counter-performance]'.
vii Lack of capacity
To enter into a contract, parties must be competent. Parties are competent at the age of majority, which is 18 years in Illinois. However, a party experiencing 'insane delusions or other mental illness' is not competent when the party's condition impairs its ability to understand the nature of the agreement. For agreements regarding necessities, the parties need not meet the capacity requirement.
viii Lack of legal authority
A party cannot enter into a contract on behalf of another person or entity unless the party has proper legal authority to do so. If a party attempts to enter into a contract on behalf of another without proper legal authority, the resulting contract is void ab initio; the other party to the contract cannot be held responsible for its promises.
ix A material breach by contracting party
A party may decline to perform its obligations under a contract if the other party has materially breached the contract by failing to perform its duties under the agreement. The breach must be 'so material and important' that it justifies ending the contract. Materiality is determined by whether a breach is 'so substantial and fundamental as to defeat the objects of the parties in making the agreement, or whether the failure to perform renders performance of the rest of the contract different in substance from the original agreement'.
Fraud, misrepresentation and other claims
A party in Illinois also may challenge the validity of an agreement on the ground that the agreement was the product of fraud or a mistake of fact. In addition, commercial disputes often involve tort-based claims that touch on contractual arrangements between the parties, such as a claim for tortious interference with a contract. If raised successfully, these claims can result in the reformation or rescission of an agreement and, in other cases, damages.
i Fraudulent misrepresentation, concealment, and inducement
Under Illinois law, a party can defend against the enforcement of a contract by raising a claim of fraudulent misrepresentation, inducement, or concealment. 'Fraud can encompass an intentional misrepresentation or an intentional concealment'. The party alleging fraud must show that the other party made a false statement of material fact and intended to induce the party into action. 'A misrepresentation is 'material' if the party seeking rescission would have acted differently had [it] been aware of the fact or if it concerned the type of information upon which [it] would be expected to rely when making [its] decision to act'. The party who allegedly expressed the fact must have either known of its falsity or not believed in its truth, and the induced party must have justifiably relied on the misrepresentation. Illinois courts also recognise fraudulent concealment when a party does not speak about or disclose a fact while under the obligation to do so due to a special or fiduciary relationship.
When a contract is induced by fraud (often referred to as 'fraud in the inducement'), the contract is voidable, and the non-breaching party has the option to 'rescind the contract' or 'waive the defect, ratify the contract, and enforce it'. When there is a fraudulent misrepresentation about the contents or effect of the contract (provided the non-breaching party justifiably relied on the misrepresentation), then the non-breaching party may seek to reform the contract to express what it understood the agreement to be rather than completely rescind the agreement.
ii Mistake of fact
A mistake of fact can, under certain circumstances, serve as a defence to the enforcement of a contract. Illinois follows the Restatement (Second) of Contracts in defining a 'mistake' as 'a[n] erroneous belief as to the contents of a writing that expresses the agreement'. A mistake of fact can be either mutual or unilateral. A mutual mistake occurs when a party can show that the mistake relates to a 'material matter' of the agreement. The mistake must be of 'such grave consequence that enforcement of the contract would be unconscionable'. The parties also must have exercised reasonable care in forming the agreement. For contracts formed under mutual mistake of fact, the parties may seek equitable relief. Courts commonly employ the remedies of rescission or reformation for mutual mistakes of fact. To reform the contract, the party must show that a mutually understood agreement or 'meeting of the minds' existed, but 'when the agreement was reduced to writing, some agreed-upon provision was omitted or one not agreed upon was inserted'. A contract entered into by mutual mistake cannot be voidable, however, where the affected party bears the risk of the mistake.
A unilateral mistake is one based on the fault of one party to the contract. In order for the agreement to be voidable on the basis of unilateral mistake, the mistake must be material and either 'the other party [must have] had reason to know of the [innocent party's] mistake', '[the other party's] fault caused the mistake,' or the result must be unconscionable. A unilateral mistake may result in the rescission of a contract only if the party who made the mistake exercised reasonable care. In addition, Illinois courts allow rescission only when it can be executed 'without doing injustice to the other party'. For both mutual and unilateral mistakes, Illinois courts will void a contract only if the parties can be placed 'in status quo ante' or in '[their] precontract position'.
iii Tortious interference with a contract
Tortious interference with a contract occurs when a party can show that another party was aware of a valid and enforceable contract between both parties, and the other party intentionally and unjustifiably induced a breach of that contract by the third party, resulting in damages. The inducing party must have done more than 'merely provid[e] information in a passive way'. Inducement 'requires some active persuasion, encouragement, or inciting' of the third party by the inducing party. Simply communicating with the third party is not enough; the plaintiff must show the defendant 'actively solicited' the third party's business and caused the breach.
iv Tortious interference with a prospective economic advantage
Tortious interference with a prospective economic advantage is similar to tortious interference with a contract but occurs when there is no contract between the plaintiff and another party. To prevail, the plaintiff must prove it had a 'reasonable expectation of entering into a valid business relationship' with the third party, the defendant's knowledge of that expectancy, 'purposeful interference by the defendant that prevents the plaintiff's legitimate expectancy from ripening into a valid business relationship', and damages resulting from the interference.
Parties can pursue a variety of remedies for breach of contract, depending on the circumstances. To recover monetary damages, a plaintiff alleging a breach of contract has the burden of proving that the breach caused damages, and must prove damages to a reasonable degree of certainty. A prevailing plaintiff is entitled to post-judgment interest, and under certain circumstances pre-judgment interest also may be available. If a legal, monetary remedy will be inadequate, Illinois courts can grant equitable remedies – such as specific performance. This section addresses the measurement of damages, contractual limits on remedies and liability, and certain forms of equitable relief.
i Damages: expectation, consequential, reliance, and punitive
Courts most typically award expectation damages, which aim to 'put the nonbreaching party into the position he or she would have been in had the contract been performed, but not in a better position'. Lost profits may be awarded as compensation if (1) 'the court is satisfied that the wrongful acts of [the] defendant caused the loss'; (2) 'the profits were reasonably within the contemplation of the defaulting party at the time [the] contract was entered into'; and (3) the lost profits can be 'determined with reasonable certainty'.
Consequential damages also may be available. These damages comprise 'economic harm beyond the contract's immediate scope'; but often they are too speculative to recover. Notably, 'lost profits can be categorised as either direct – compensatory – or indirect – consequential – depending on the situation'. Thus, if a contract disclaims liability for consequential damages, lost profits may not be recovered unless they are part of 'the benefit of the bargain that the party lost from the contract itself'. For example, in Westlake Financial Group v. CDH-Delnor Health Systems, the plaintiff sought lost profits for the final two years of a five-year contract that the defendant breached by terminating the agreement after three years. Although the contract prohibited the recovery of consequential damages, the court held that plaintiff could pursue its lost profits, even though they were not guaranteed, because the years of performance provided a 'concrete basis' that could be used to calculate the plaintiff's expectancy.
If expectation damages are difficult to determine, the plaintiff may obtain 'damages based on his reliance interest'. In contrast to expectation damages, which give the plaintiff the benefit of its bargain, the goal of reliance damages is to 'put the injured party in as good a position as [it] would have been in had the contract not been made'. These damages may include 'expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed'.
Punitive damages will 'not be awarded for a breach of contract, even if the breach was willful.' They are available to a plaintiff only if 'the breach amounts to an independent tort and there are proper allegations of malice, wantonness or oppression'.
ii Contractual provisions concerning remedies
Illinois courts generally enforce contractual limits on remedies. For example, a remedy provision 'will be deemed exclusive if the contract warrants this interpretation, even if the word 'exclusive' does not expressly appear within the contract'. Courts also uphold and enforce indemnity provisions, but they will be 'strictly construed'. Attorneys' fees, for example, 'are only recoverable pursuant to an indemnity contract if such terms are specifically provided for within the contract'. Exculpatory clauses are disfavoured. In order to balance the two conflicting policy interests – that 'a person should be liable for negligent breach of a duty that he owes another;' and 'a person should have the right to freely contract about his affairs' – exculpatory agreements will also be 'strictly construed against a benefitting party'.
Parties are free to include liquidated damages provisions in their agreements, which Illinois courts will evaluate on a case-by-case basis. Courts enforce liquidated-damages provisions 'as long as (1) the parties intended to agree in advance to the settlement of damages that might arise from a breach, (2) the amount provided as liquidated damages was reasonable at the time of contracting and bore some relation to the damages which might be sustained, and (3) the actual damages would be uncertain in amount and difficult to prove'.
iii Equitable remedies: specific performance, rescission, and reformation
Under certain circumstances, courts will award an equitable remedy in lieu of money damages. Specific performance is the quintessential example. It will be awarded 'where the damage remedy at law is inadequate'. Although specific performance 'is not granted as an absolute right', but as 'a matter of sound judicial discretion controlled by established principles of equity and exercised upon a consideration of all the facts and circumstances of a particular case', it generally will be granted for the breach of a valid contract for the sale of real property, 'absent circumstances of oppression and fraud'.
As explained above, where fraud contaminates a contract, 'rescission may be an appropriate remedy'. The fraud may consist of a misrepresentation made in order to induce the other party to act or the intentional concealment of a material fact, which, had the other party been aware of it, would have caused that party to act differently. The party seeking rescission must be able to 'restore the other party to the status quo ante existing at the time the contract was made'. The remedy of rescission 'presumes that a valid contract exists; it does not negate that a contract ever existed'.
Similarly, to obtain a judicial reformation of a contract, the plaintiff must assert '(1) the existence and substance of an agreement between the parties and the identity of the parties to the agreement; (2) the parties' agreement to reduce their agreement to writing; (3) the substance of the written agreement; (4) that a variance exists between the parties' original agreement and the writing; and (5) mutual mistake or some other basis[,] [like fraud] for reformation'. A plaintiff must prove the fourth and fifth elements by 'clear and convincing evidence' before a court will consider reforming a contract.
As illustrated above, there is a large body of commercial law in Illinois, which is a combination of common and statutory law. Although Illinois courts are not as specialised as courts in Delaware or New York, they decide a large number of commercial cases each year and offer a reasonably predictable forum for resolving contractual disputes. In general, they are influenced heavily by the common law tradition and rely on many years of judicial precedent from the Supreme Court of Illinois and the Illinois Appellate Court to resolve disputes. This precedent generally recognises parties' rights to freely enter into contracts, and Illinois courts generally enforce the terms of those contracts as written, especially when the parties are sophisticated. But, as is true in many jurisdictions in the United States, Illinois courts recognise a number of common law doctrines designed to protect parties with unequal bargaining power, and enforce statutes enacted by the Illinois legislature that do the same.