Contract Basics for Litigators: Illinois

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STATE Q&A

by Diane Cafferata and Allison Huebert, Quinn Emanuel Urquhart & Sullivan, LLP, with Practical Law Commercial Litigation

Status: Law stated as of 01 Jun 2020 | Jurisdiction: Illinois, United States

This document is published by Practical Law and can be found at: us.practicallaw.tr.com/w-022-7463

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Contract Formation

1. What are the elements of a valid contract

in your jurisdiction?

In Illinois, the elements necessary for a valid contract are:

• An offer.

• An acceptance.

• Consideration.

• Ascertainable Material terms.

• Intent to be bound and mutual assent.

(DiLorenzov.Valve & Primer Corp., 347 Ill. App. 3d 194,

199-200 (2004); Lalv.Naffah, 149 Ill. App. 3d 245, 248

(1986)).)

Offer

The test for an offer is whether it induces a reasonable

belief in the recipient that he can, by accepting, bind

the offeror (VC Mgmt., LLCv.Reliastar Life Ins. Co., 195 F.

Supp. 3d 974, 985 (N.D. Ill. 2016) (applying Illinois law)).

Illinois courts typically refer to legal deﬁnitions of the

term “offer” to determine whether the words or conduct

constituted an offer to enter into a contract. For example,

courts have deﬁned an offer as a “display of willingness

to enter into a contract on speciﬁed terms, made in a

way that would lead a reasonable person to understand

that an acceptance, having been sought, will result in a

binding contract” and “the manifestation of willingness

to enter into a bargain, made in a manner that justiﬁes

another party’s understanding that its assent to that

bargain is invited and will conclude it” (First 38, LLCv.NM

Project Co., 2015 IL App (1st) 142680-U, ¶ 51 (unpublished

order under Ill. S. Ct. R. 23) (citing Black’s Law Dictionary

1113 (8th ed.2004) and Restatement (Second) of

Contracts§24 (1981))).

Acceptance

Under Illinois law, an acceptance occurs if the party

assented to the essential terms contained in the

offer (Kleinv.Klein, 2017 IL App (1st) 153393-U, ¶ 23

(unpublished order under Ill. S. Ct. R. 23)). An offeree

may manifest acceptance through a variety of channels,

including conduct, words, a signature, or performance

(VC Mgmt., LLC, 195 F. Supp. 3d at 989). The offeree

must objectively manifest its acceptance (Trapani Constr.

Co.v.Elliot Grp., Inc., 2016 IL App (1st) 143734, ¶ 56).

The acceptance must be absolute, unconditional, and

identical with the terms of the offer. Under the “mirror

image” rule in Illinois, if the acceptance is not strictly

identical to the offer, it is considered a counteroffer

that effectively rejects and extinguishes the initial offer.

(Nomanbhoy Family Ltd. P’shipv.McDonald’s Corp., 579 F.

Supp. 2d 1071, 1092 (N.D. Ill. 2008) (applying Illinois law).)

Consideration

Illinois courts deﬁne consideration as the bargained-for

exchange of promises or performance (DiLorenzov.Valve &

Primer Corp., 347 Ill. App. 3d 194, 200 (2004)). Refraining

A Q&A guide to state law on contract principles and breach of contract issues under Illinois common

law. This guide addresses contract formation, types of contracts, general contract construction

rules, how to alter and terminate contracts, and how courts interpret and enforce dispute resolution

clauses. This guide also addresses the basics of a breach of contract action, including the elements

of the claim, the statute of limitations, common defenses, and the types of remedies available to the

non-breaching party.

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Contract Basics for Litigators: Illinois

from doing something one is otherwise entitled to do is

a form of consideration (DiLorenzo, 347 Ill. App. 3d at

200). This type of consideration is common in forbearance

agreements where a party agrees to refrain from enforcing

a legal right (RBS Citizens, Nat’l Ass’nv.RTG-Oak Lawn,

LLC, 407 Ill. App. 3d 183, 186-87 (2011)).

Courts do not assess whether the consideration was

adequate. Courts assess only whether consideration exists

to support formation of the contract. (Gallagherv.Lenart,

226 Ill. 2d 208, 243 (2007); Chandrav.Chandra, 2016 IL

App (1st) 143858, ¶ 16.)

Ascertainable Material Terms

In order for a contract to be enforceable, its terms and

provisions must enable the court to ascertain what the

parties have agreed to do (Builders, Inc.v.Noggle Family

Ltd. P’ship, 352 Ill. App. 3d 1182, 1185 (2004)).The material

terms of a contract are those terms that are necessary and

have enough detail for a court to enforce them (Babbitt

Municipalities, Inc.v.Health Care Serv. Corp., 2016 IL App

(1st) 152662, ¶ 29; Vill. of Rocktonv.Rock Energy Co-

op., 2011 WL 10418590, at *2 (Ill. App. Ct. Apr. 8, 2011)

(unpublished order under Ill. S. Ct. R. 23).

Intent to be Bound and Mutual Assent

Under Illinois law, to form a contract there must be

an objective manifestation of a meeting of the minds

or mutual assent as to the terms of the contract

(Anandv.Heath, 2019 WL 2716213, at *3 (N.D. Ill. June

28, 2019) (applying Illinois law); Burkhartv.Wolf Motors

of Naperville, Inc., 2016 IL App (2d) 151053, ¶ 14). Courts

measure the parties’ intent to be bound based on the

parties’ words and acts (Evans, Inc.v.Tiffany & Co., 416 F.

Supp. 224, 239 (N.D. Ill. 1976) (applying Illinois law); see

also Tindall Corp.v.Mondelez Int’l, Inc., 248 F. Supp. 3d

895, 908-09 (N.D. Ill. 2017) (applying Illinois law)).

The “intent to be bound” analysis often overlaps with

the “mutual assent” analysis because courts typically

examine the parties’ words, conduct, and acts to

determine both elements (see Lal, 149 Ill. App. 3d at 248

(”An essential element for the formation of a contract is

the manifestation of agreement or mutual assent by the

parties to the terms thereof”)).

2. What categories of contracts must be in

writing to satisfy your jurisdiction’s statute

of frauds?

Illinois’s statute of frauds requires the following types of

promises or agreements to be in writing:

• A promise to pay for the debt or default of another

person (740 ILCS 80/1).

• Any agreement in consideration of marriage (740

ILCS 80/1).

• An agreement for the sale or lease or other disposition

of real property. However, the lease of property for less

than one year is not within the statute of frauds and

may be oral. (740 ILCS 80/2.)

• Any agreement that could not possibly be performed

within one year (740 ILCS 80/1). This does not

necessarily include contracts that have an indeﬁnite

duration if, when the contract was made, the contract’s

full performance could have occurred within one year

from inception of the contract (Dugas–Filippiv.JP

Morgan Chase, N.A., 66 F. Supp. 3d 1079, 1089 (N.D. Ill.

2014) (applying Illinois law); Armaganv.Pesha, 2014 IL

App (1st) 121840, ¶ 41).

• A wholesale brewer’s agreement (815 ILCS 720/5(4)).

• The sale of a business opportunity that is required to be

registered under the Business Opportunity Sales Law of

1955 (815 ILCS 602/5-40(a)).

For sales contracts governed by the UCC, the writing

requirement applies to contracts for the price of $500 or

more (810 Ill. Comp. Stat. Ann. 5/2-201(1)).

For more information on the statute of frauds generally,

see Practice Note, Signature Requirements for an

Enforceable Contract.

3. In your jurisdiction, what must the writing

contain to satisfy the statute of frauds?

In Illinois, to satisfy the statute of frauds, the writing must:

• Consist of one or more documents signed by the party

against whom enforcement is sought.

• Contain all essential terms without resort to parol

evidence.

(Gilmorev.City of Mattoon, 2019 IL App (4th) 180777, ¶¶

23-25.)

In sales contracts, a writing may be sufficient even if it

omits or incorrectly states a term but is not enforceable

beyond the quantity stated in the writing. Further, in a

contract between merchants, a written confirmation of

the contract sent by one party is sufficient unless the

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Contract Basics for Litigators: Illinois

other party gives written notice of objection to within

ten days after it receives the confirmation. (810 Ill.

Comp. Stat. Ann. 5/2-201.)

To satisfy the statute of frauds for a covered real estate

transaction, the agreement must:

• Be in writing.

• Identify the parties.

• Contain the signature of the party to be charged;

• State the essential terms including:

– the purchase price; and

– the manner of payment.

• Identify the property in detail.

(GLS Dev., Inc.v.Wal-Mart Stores, Inc., 944 F. Supp. 1384,

1393 (N.D. Ill. 1996) (applying Illinois law); Hartkev.Conn,

102 Ill. App. 3d 96, 100 (1981).)

Types of Contracts

4. Describe the types of contracts your

jurisdiction recognizes. Please include how

your jurisdiction deﬁnes each type.

Illinois recognizes the following types of contracts:

• Express.

• Implied-in-fact.

• Quasi-contract.

• Written and oral.

• Unilateral and bilateral.

Express Contract

An express contract is an agreement arrived at by the

parties’ words, whether oral or written (Cable Am.,

Inc.v.Pace Elecs., Inc., 396 Ill. App. 3d 15, 20 (2009)).

Anexpress contract is derived from an actual agreement,

either verbal or written, rather than the party’s conduct

(Greenview Ag Ctr., Inc.v.Yetter Mfg. Co., 246 Ill. App. 3d

132, 137 (1993)).

Implied-in-Fact Contract

An implied-in-fact contract is based on the parties’

conduct. It is considered a tacit promise, inferred in whole

or in part by the parties’ conduct and not solely from

their words. (Greenview Ag Ctr., 246 Ill. App. 3d at 137.)

The only distinction between an express contract and an

implied-in-fact contract is how a party manifests assent

to the contract.

Quasi-Contract

A quasi-contract, sometimes called an implied-in-law

contract, is a legal ﬁction created without regard to a

party’s assent (by words or conduct) to any speciﬁc contract

terms. The theory of quasi-contract includes the remedies

of quantum meruit and unjust enrichment. Illinois courts

recognize a quasi-contract when that a defendant received

a beneﬁt that it would be unjust for it to retain. (See Marque

Medicos Farnsworth, LLCv.Liberty Mut. Ins. Co., 2018 IL App

(1st) 163351, ¶ 16; Vill. of Bloomingdalev.CDG Enters., Inc.,

196 Ill. 2d 484, 500 (2001).)

Written and Oral Contracts

A written contract contains the essential terms of the

transaction in writing whereas an oral contract represents

an agreement that the parties have not reduced to writing.

Illinois recognizes both types of contracts as valid, but the

statute of frauds requires certain types of contracts to be

in writing (see Question 2).

Unilateral and Bilateral Contracts

In a unilateral contact only one party is bound at the

outset, while a bilateral contract binds both parties.

Illinois law recognizes an option contract as one in which

a party grants to the option holder the sole power to

accept performance on the terms speciﬁed at which time

it is converted from a bilateral to a unilateral contract

(see Terraces of Sunset Park, LLCv.Chamberlain, 399 Ill.

App. 3d 1090, 1093-94 (2010)).

Construction of Contracts

5. What are the general rules of contract

construction in your jurisdiction? For

example, rules construing inconsistencies,

intention of the parties, deﬁnitions, etc.

Parties’ Intent

An Illinois court’s primary goal is to ascertain and give

effect to the intention of the parties at the time the

contract was formed (Matthewsv.Chicago Transit Auth.,

2016 IL 117638, ¶ 77). For example, when analyzing an

ambiguous term, the guiding principle is always what

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Contract Basics for Litigators: Illinois

the parties intended the term to mean considering the

overall contract. Illinois courts determine the intention of

the parties to a written contract based on the words of the

contract alone without resorting to any extrinsic evidence.

Courts may resort to extrinsic evidence to explain an

ambiguity in the contract. (Hickoxv.Bell, 195 Ill. App. 3d

976, 989-90 (1990).)

Grammar and Meanings

Unless the intent of the parties appears to have been

otherwise, Illinois courts construe a modifying word as

referring to its nearest antecedent (Hardware Mut. Cas.

Co.v.Curry, 21 Ill. App. 2d 343, 349 (1959)). When a

contract does not deﬁne a term, the court will give the term

its plain and ordinary meaning (citing Deutsche Bank Nat’l

Tr. Co.v.Roongseang, 2019 IL App (1st) 180948, ¶ 27).

Implied Terms

In addition to the written provisions of a contract, certain

terms and conditions are implied as a matter of law and

are just as binding as written or spoken terms. One of

the most commonly litigated implied provisions is the

covenant of good faith and fair dealing. However, the

implied covenant of good faith and fair dealing cannot be

used to vary the express terms of a contract. (RBS Citizens,

N.A.v.Sanyou Imp., Inc., 2011 WL 4790936, at *2-*3 (N.D.

Ill. Oct. 6, 2011) (applying Illinois law).)

Entire Contract

Illinois courts read provisions of a contract harmoniously

to give effect to all portions (Matthews, 2016 IL 117638,

at ¶ 77)).

Ambiguity or Inconsistency

A contractual term is ambiguous if it is subject to

more than one reasonable interpretation. However,

in determining if a provision is ambiguous, an Illinois

court must consider the entire agreement to clarify

what the parties meant by the provision in question.

(Thompsonv.Gordon, 241 Ill. 2d 428, 442–43 (2011).) If

the court cannot resolve the ambiguity by reference to

the entire agreement, the court may admit parol evidence

to determine the meaning by reference to the parties’

statements and conduct (see Question 6).

As a rule of last resort, the court should construe an

ambiguous term against the drafter (Bakerv.Am.’s

Mortg. Servicing, Inc., 58 F.3d 321, 327 (7th Cir. 1995)

(applying Illinois law) (”This canon of construction

(contra proferentem) is a rule of last resort, a ‘tie-breaker’

of sorts, that comes into play only when neither the

extrinsic evidence nor other methods of construction can

resolve the ambiguity”); Premier Title Co.v.Donahue, 328

Ill. App. 3d 161, 165-66 (2002)).

Speciﬁc Over General

A contract provision speciﬁcally addressing a speciﬁc

subject matter controls over any other contract provision

that generally addresses that same subject matter

(Grevasv.U.S. Fid. & Guar. Co., 152 Ill. 2d 407, 411

(1992)). When general words follow particular words in

a document, unless a contrary interest is evident, the

general words are construed to include only the same

kinds of things as the particular words (see Interstate Steel

Co.v.Ramm Mfg. Corp., 108 Ill. App. 3d 404, 407 (1982)).

6. How does your jurisdiction deﬁne and

apply the parol evidence rule?

In Illinois, the parol evidence rule prevents a party from

using a prior or contemporaneous oral agreement or

other extrinsic evidence to vary the terms of a written

agreement unless there is ambiguity in the contract. In

other words, an unambiguous written contract intended

by the parties to be their ﬁnal agreement may not be

contradicted, modiﬁed, or varied by parol evidence. (Right

Field Rooftops, LLCv.Chicago Cubs Baseball Club, LLC,

870 F.3d 682, 690 (7th Cir. 2017) (applying Illinois law);

Gallagher, 226 Ill. 2d at 233; W.W. Vincent & Co.v.First

Colony Life Ins. Co., 351 Ill. App. 3d 752, 757-58 (2004).)

Even absent an ambiguity, courts may consider extrinsic

evidence of industry custom and usage (Intersport,

Inc.v.Nat’l Collegiate Athletic Ass’n, 381 Ill.App.3d 312, 319

(1st Dist.2008)).

Illinois courts apply the parol evidence rule in the same

way whether or not a contract includes a merger clause

(see Asset Recovery Contracting, LLCv.Walsh Constr. Co. of

Ill., 2012 IL App (1st) 101226, ¶ 71; Air Safety, Inc.v.Teachers

Realty Corp., 185 Ill. 2d 457, 464 (1999)).

Altering and Terminating Contracts

7. Describe how a party modiﬁes a contract

in your jurisdiction.

Under Illinois law, to modify a contract, the parties’

contract modiﬁcation must satisfy all criteria essential

for a valid contract, including:

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Contract Basics for Litigators: Illinois

• Offer.

• Acceptance.

• Consideration

(VC Mgmt., LLC, 195 F. Supp. 3d at 985 (applying Illinois

law); Nebel, Inc.v.Mid–City Nat’l Bank of Chicago, 329 Ill.

App.3d 957, 964 (2002).)

Illinois law permits parties to a written contract to alter

or modify its terms by subsequent oral agreement, even

where the written contract precludes oral modiﬁcation

(R.J. O’Brien & Assocs., Inc.v.Vierstra, 2003 WL 1627271,

at *5 (N.D. Ill. Mar. 27, 2003) (applying Illinois law);

Tadrosv.Kuzmak, 277 Ill. App. 3d 301, 312 (1995)).

8. Does your jurisdiction recognize

novations? If so, how does your jurisdiction

deﬁne them and how are they executed.

Yes. Under Illinois law, a novation is a separate and

new agreement between the parties that discharges an

existing obligation and substitutes a new one (Crest Hill

Land Dev., LLCv.Conrad, 2019 IL App (3d) 180213, ¶ 35).

To prove that the parties intended to create a novation, a

party must show:

• The existence of a previously valid contract.

• The agreement of all the parties to the new contract.

• The extinguishment of the old contract.

• The validity of the new contract.

• Consideration, which parties generally satisfy by

extinguishing an old obligation in exchange for a new

one.

(Crest Hill Land Dev., 2019 IL App (3d) 180213, ¶ 35.)

9. Describe how a party terminates a

contract in your jurisdiction.

Contracts typically terminate after satisfaction of the

contractual obligations or on a date speciﬁed in the

contract. If there is no ﬁxed date or other measure of

the parties’ obligations, the contract is treated as for

an indeﬁnite term and any party may terminate it at

will (Jespersenv.Minnesota Min. & Mfg. Co., 183 Ill. 2d

290, 293 (1998)). If an otherwise indeﬁnite contract is

terminable on the occurrence of a speciﬁc event, then it is

not considered terminable at will (A.T.N., Inc.v.McAirlaid’s

Vliesstoffe GmbH & Co. KG, 557 F.3d 483, 487 (7th Cir.

2009) (applying Illinois law)).

To terminate a contract before the parties have satisﬁed

the contractual obligations, the terminating party must

have a valid legal justiﬁcation, such as the other party’s

material breach, or have a contractual provision governing

termination before completion. Under Illinois law, a

material breach empowers the non-breaching party to

terminate the contract (Peoria Partners, LLCv.Mill Grp.,

Inc., 2015 WL 8989675, at *4 (N.D. Ill. Dec. 16, 2015)

(applying Illinois law); Wolfram P’ship, Ltd.v.LaSalle Nat’l

Bank, 328 Ill. App. 3d 207, 222-23 (2001), as modiﬁed on

denial of reh’g (Mar. 20, 2002)).

Dispute Resolution Clauses

10. How does your jurisdiction interpret and

enforce choice of law provisions?

Illinois law interprets and enforces choice of law provisions

under either a statutory or common law analysis.

Illinois allows parties to choose Illinois law to govern

their contracts even if the transaction has no connection

or “bears [no] reasonable relation” to the state, if the

aggregate of the transaction is at least $250,000 (735

ILCS 105/5-5). However, the law does not apply to:

• Labor contracts.

• Personal, family, or household service contracts.

• The extent provided to the contrary in the UCC choice-

of-law provisions addressed by 810 ILCS 5/1-301.

(735 ILCS 105/5-5.)

Statutes of limitations are procedural and not covered by a

generic choice-of-law clause (Belleville Toyota, Inc.v.Toyota

Motor Sales, U.S.A., Inc., 199 Ill. 2d 325, 351-352 (2002)).

If Section 5-5 does not apply, Illinois reverts to common

law principles reﬂected in the Restatement (Second) of

Conﬂict of Laws§187 (1971) to determine the validity of

a choice of law clause (see Dancor Constr., Inc.v.FXR

Constr., Inc., 2016 IL App (2d) 150839, ¶¶ 72-73). Under

the Restatement, courts generally enforce the parties’

choice of law unless the selected state does not have

a “substantial relationship” with the parties or the

transaction. There should be at least a “reasonable basis”

for the choice of law. Courts consider factors like:

• The location of the parties or the subject property.

• Where the parties will perform the contract.

(See State Farm Mut. Auto. Ins. Co.v.Burke, 2016 IL App

(2d) 150462, ¶¶ 61-62.)

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Contract Basics for Litigators: Illinois

For example, a court found a reasonable basis for the

choice of law where:

• A party’s principal place of business was in the state.

• The contract was executed in the state.

• The payments due under a lease were sent to the

party’s home ofﬁce in the state.

(Potomac, 156 Ill. App. 3d at 760.)

In certain instances, courts may apply another state’s law

if applying the selected law would violate a signiﬁcant

public policy of another state:

• That has a materially greater interest in a speciﬁc issue.

• Whose law would have been applied in the absence of a

choice of law clause.

(See Champagniev.W.E. O’Neil Constr. Co., 77 Ill.App.3d

136, 139 (1979).)

For more information on the enforceability of choice of

law provisions, see Standard Clause, General Contract

Clauses: Choice of Law (IL): Drafting Note: Enforceability

of Choice of Law Provisions in Illinois.

Illinois federal courts sitting in diversity must apply the

choice of law rules of the forum state (NewSpin Sports,

LLCv.Arrow Elecs., Inc., 910 F.3d 293, 300 (7th Cir. 2018)).

Therefore, the federal approach generally follows the

approach used in Illinois state courts.

11. How does your jurisdiction interpret and

enforce choice of forum provisions?

The interpretation and enforcement of choice of forum

provisions depends on whether the breach of contract

claim is pending in Illinois state or federal court.

Illinois State Court Analysis

Unless a forum selection clause is unreasonable or unjust,

an Illinois state court will enforce the provision (GPS

USA, Inc.v.Performance Powdercoating, 2015 IL App (2d)

131190, ¶ 37). To determine if the forum selection clause is

unreasonable, a court looks at:

• The law governing the formation and construction of

the contract.

• The residency of the parties involved.

• The place of execution or performance of the contract.

• The location of the parties and witnesses involved in the

litigation.

• The inconvenience to the parties of any particular

location.

• Whether the parties had equal bargaining power.

(Calancav.D & S Mfg. Co., 157 Ill. App. 3d 85, 88 (1987).)

When parties freely agree to be bound by a forum

selection clause that contemplates inconvenience, a party

cannot later try to invalidate the clause based on this

factor (Calanca, 157 Ill. App. 3d at 88). Mere inconvenience

is not a reasonable basis for voiding an express forum

selection clause (Brandtv.MillerCoors, LLC, 2013 IL App

(1st) 120431, ¶ 17).

The fact that a party uses a standard contract containing

a forum selection clause is not sufﬁcient in itself to

demonstrate unequal bargaining power between the

parties (Brandt, 2013 IL App (1st) 120431, ¶ 20).

Courts do not enforce forum selection clauses procured

by fraud or overreaching but the fraud alleged must be

speciﬁc to the forum selection clause itself and not to

the procurement of the contract generally (see IFC Credit

Corp.v.Rieker Shoe Corp., 378 Ill. App. 3d 77, 93 (2007)).

For more information on how Illinois state courts interpret

and enforce forum selection clauses, see Standard Clause,

General Contract Clauses: Choice of Forum (IL): Drafting

Note: Illinois Courts.

Illinois Federal Court Analysis

Whether under traditional diversity or federal question

jurisdiction, federal courts in Illinois analyze choice of

forum provisions under federal common law, not Illinois

state law (28 U.S.C.§1404(a)).

The US Supreme Court has held that courts should

enforce the parties’ contractually valid choice of forum

except in the most unusual cases (Atl. Marine Const.

Co., Inc.v.U.S. Dist. Court for W. Dist. of Texas, 571

U.S. 49, 66 (2013); see Legal Update, Supreme Court

Explains How to Enforce Forum Selection Clauses).

Courts in the Seventh Circuit have generally found

forum selection clauses presumptively valid and

enforceable unless the party challenging enforcement

can show that the provision is unfair or unreasonable

(Jacksonv.Payday Fin., LLC, 764 F.3d 765, 776 (7th

Cir. 2014); Featherv.SSM Health Care, 216 F. Supp. 3d

934, 939 (S.D. Ill. 2016)). In assessing fairness and

reasonableness a court considers whether:

• The clause was motivated by bad faith, such as a means

of discouraging individual from pursuing legitimate

claims.

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Contract Basics for Litigators: Illinois

• A party obtained accession to the forum selection

clause by fraud or overreaching.

• The party seeking to enforce the clause gave the other

notice of the forum provision.

(Feather, 216 F. Supp. 3d at 941.)

12. How does your jurisdiction interpret

and enforce alternative dispute resolution

provisions, such as mediation and

arbitration clauses?

Under Illinois law, courts play only a gatekeeping role

limited to determining whether:

• There is a valid agreement to arbitrate.

• The dispute falls within the scope of that agreement.

(710 ILCS 5/2; Sturgillv.Santander Consumer USA, Inc.,

2016 IL App (5th) 140380, ¶22; see also See Liuv.Four

Seasons Hotel, Ltd., 2019 IL App (1st) 182645, ¶ 24 (three-

pronged test depending on whether issue is clearly within

the scope of the arbitration clause, clearly outside the

scope of the clause, or it is unclear whether the issue falls

within the scope of the clause).)

Illinois state courts and federal courts sitting in diversity

generally interpret and enforce alternative dispute

resolution provisions by relying on basic principles

of contract construction (Ervinv.Nokia, Inc., 349 Ill.

App. 3d 508, 511-12 (2004) (citing First Options of

Chi., Inc.v.Kaplan, 514 U.S. 938, 944 (1995)) (courts

should apply ordinary state-law contract principles

in determining whether parties agreed to arbitrate a

matter)). For more information on contract construction

principles, see Question 5.

As a matter of federal law, which applies in state

and federal court, any doubts concerning the scope

of arbitrable issues should be resolved in favor of

arbitration, whether the problem at hand is the

construction of the contract language itself or an

allegation of waiver, delay, or a similar defense to

arbitrability (Moses H. Cone Mem’l Hosp.v.Mercury

Constr. Corp., 460 U.S. 1, 24–25 (1983)).

For more information on the interpretation and

enforcement of alternative dispute resolution clauses,

see Practice Note, Compelling and Staying Arbitration in

Illinois and Standard Clause, General Contract Clauses:

Alternative Dispute Resolution (Multi-Tiered) (IL).

Breach of Contract

13. What are the elements of a breach of

contract claim in your jurisdiction?

Under Illinois law, a breach of contract claim must allege

four elements:

• The existence of a valid and enforceable contract, which

requires that there be between the parties:

– an offer;

– acceptance;

– consideration; and

– mutual assent.

(Nat’l Prod. Workers Union Ins. Tr.v.Cigna Corp., 665

F.3d 897, 901 (7th Cir. 2011) (applying Illinois law);

(DiLorenzo, 347 Ill. App. 3d at 199-200; see Question 1.)

• The plaintiff substantially performed the contract.

• The defendant’s breach of the contract.

• Damages resulting from the breach.

(W.W. Vincent & Co.v.First Colony Life Ins. Co., 351 Ill. App.

3d 752, 759 (2004).)

14. Describe what circumstances are

considered an actionable breach of contract

in your jurisdiction.

A defendant’s failure to comply with a duty imposed

by the contract constitutes a breach (Nielsenv.United

Servs. Auto. Ass’n, 244 Ill. App. 3d 658, 662 (1993)).

Any breach of contract is actionable, and the severity

of the breach just affects the plaintiff’s damages (see

Paciniv.Regopoulos, 281 Ill. App. 3d 274, 279 (1996)). Only

a material breach by the defendant justiﬁes the plaintiff’s

nonperformance (see InsureOne Indep. Ins. Agency,

LLCv.Hallberg, 2012 IL App (1st) 092385, ¶ 43).

Every contract has an implied covenant of good faith and

fair dealing (Resolution Trust Corp.v.Holtzman, 248 Ill. App.

3d 105, 112 (1993). Breach of the duty of good faith and fair

dealing arises only when one party is vested with contractual

discretion and exercises that discretion arbitrarily,

capriciously, or in a manner inconsistent with the reasonable

expectation of the parties (Bank One, Springﬁeldv.Roscetti,

309 Ill. App. 3d 1048, 1059–60 (1999)).

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The covenant of good faith and fair dealing arises most

often in contracts that give certain rights to one party

but not the other. For example, a franchise contract

may give the franchisor absolute discretion to change

the policies and procedures to which franchisees must

adhere. In that case, a franchisor can only exercise that

discretion reasonably and with proper motive and cannot

do so arbitrarily, capriciously, or in a manner inconsistent

with the reasonable expectations of the parties.

(Bonﬁeldv.AAMCO Transmissions, Inc., 708 F. Supp. 867,

884–85 (N.D. Ill. 1989) (applying Illinois law).) The duty

of good faith and fair dealing, however, cannot be used to

overrule or modify the express terms of a contract (Bank

One, Springﬁeld, 309 Ill. App. 3d. at 1060).

15. What is the statute of limitations

for a breach of contract action in your

jurisdiction? Please also discuss when the

limitations period begins to run, whether

it may be tolled, and how to plead the

defense.

In Illinois, the statute of limitations for a breach of

written contract claim is ten years (735 ILCS 5/13-206;

Clarkv.Robert W. Baird Co., Inc., 142 F. Supp. 2d 1065,

1075 (N.D. Ill. 2001) (applying Illinois law)). The statute

of limitations for a breach of oral contract claim is ﬁve

years (735 ILCS 5/13-205; Clark, 142 F. Supp. 2d at 1075).

For construction contracts, the statute of limitations

is four years from the time plaintiff knew or should

reasonably have known of the act or omission giving rise

to the claim. There is also a ten-year period of repose

for construction contract claims (735 ILCS 5/13-214; see

Grahamv.Lakeview Pantry, 2019 IL App (1st) 182003, ¶ 12

(referring to the ten-year period in Section 13-214(b) as a

statute of repose).)

Apart from construction contracts, Illinois does not

generally apply the discovery rule to statutes of limitations

in breach of contract actions (Sinclairv.Bloom, 1996 WL

264725, at *4 (N.D. Ill. May 15, 1996) (applying Illinois

law); but see Hermitage Corp.v.Contractors Adjustment

Co., 166 Ill. 2d 72, 78-79 (1995); Prignanov.Prignano,

405 Ill. App. 3d 801, 814 (2010)). Unless circumstances

exist that justify the application of the discovery rule, the

statute of limitations period on breach of contract actions

accrues at the time of the breach (Milnesv.Hunt, 311 Ill.

App. 3d 977, 980 (2000)).

When a breach of contract claim accrues may depend on

the type of transaction involved. For example, where the

contract requires performance on demand the statute

of limitations begins to run from the date of demand

(Schreiberv.Hackett, 173 Ill. App. 3d 129, 131 (1988)).

The statute of limitations defense typically is asserted

either:

• As an afﬁrmative defense in an answer to the complaint

(735 ILCS 5/2-613(d); see Rajcanv.Donald Garvey &

Assocs., Ltd., 347 Ill. App. 3d 403, 410 (2004)).

• In a motion to dismiss, in lieu of serving an answer to

the complaint (735 ILCS 5/2-619(a)(5)).

The statute of limitations for a breach of contract action

may be tolled under certain circumstances, such as:

• Continuous contracts.

• Equitable estoppel.

• By operation of a statute.

Continuous Contracts

Contracts requiring continuous performance are capable

of being partially breached, and each partial breach is

subject to its own accrual date and own limitation period

(see Hassebrockv.Ceja Corp., 2015 IL App (5th) 140037, ¶

35). This typically occurs where an obligation is payable

by installments (see Luminall Paints, Inc.v.La Salle Nat’l

Bank, 220 Ill. App. 3d 796, 802 (1991)).

Equitable Estoppel

Equitable estoppel tolls the statute of limitations where

the plaintiff’s failure to bring a timely action was caused

by the defendant’s deception or concealment of material

facts (Jasper Oil Producers, Inc.v.Dupo Oilﬁeld Dev., Inc.,

2015 IL App (5th) 150084-U, ¶ 14 (unpublished order

under Ill. S. Ct. R. 23); Swann & Weiskopf, Ltd.v.Meed

Assocs., Inc., 304 Ill. App. 3d 970, 977 (1999)).

Statutes

Counsel also should check relevant statutes for any

applicable tolling provisions. For example:

• If a plaintiff is either under the age of 18 years or under

a legal disability when the cause of action accrues, the

plaintiff may bring the action within two years after the

person attains the age of 18 years, or the disability is

removed (735 ILCS 5/13-211(a)).

• If a defendant fraudulently conceals the cause of such

action from the knowledge of the plaintiff, plaintiff may

commence the action within ﬁve years after plaintiff

discovers that it has cause of action (735 Ill. Comp. Stat.

Ann. 5/13-215).

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Contract Basics for Litigators: Illinois

16. Under what circumstances does your

jurisdiction recognize a third party’s

standing to sue for breach of contract?

Illinois law recognizes both intended and incidental third-

party beneﬁciaries, but only intended beneﬁciaries have

rights and may sue (Hackerv.Shelter Insurance Co., 388

Ill.App.3d 386, 394 (2009). A party must be expressly

named in the contract to be considered an intended third-

party beneﬁciary (Paukovitzv.Imperial Homes, Inc., 271 Ill.

App. 3d 1037, 1039 (1995)).

Remedies for Breach of Contract

17. What legal remedies are available to the

non-breaching party in your jurisdiction?

Under Illinois law, the prevailing plaintiff in a breach of

contract action may recover either:

• Compensatory damages, which may include:

– general (or direct) damages; and

– special (or consequential) damages.

• Liquidated damages, if required under the contract.

A party may also be entitled to recover its attorneys’ fees

if there is a fee-shifting provision in the contract (Bank of

Am.v.WS Mgmt., Inc., 2015 IL App (1st) 132551, ¶ 119).

The plaintiff generally cannot recover punitive damages

in ordinary breach of contract actions (Morrowv.L.A.

Goldschmidt Associates, Inc., 112 Ill.2d 87, 95 (1986)).

Compensatory Damages

The purpose of compensatory damages is to restore the

plaintiff to the same position it would have been in had

the defendant not breached the contract.

There are two types of compensatory contract damages:

• General damages. General damages ﬂow directly from

the defendant’s breach and are the natural, logical, and

probable consequence of that breach (In re: Emerald

Casino, Inc., 867 F.3d 743, 757 (7th Cir. 2017) (applying

Illinois law); Midland Hotel Corp.v.Reuben H. Donnelley

Corp., 118 Ill. 2d 306, 318 (1987)).

• Consequential damages. Damages that are the

consequence of special or unusual circumstances are

recoverable when they are within the contemplation of

the parties (In re: Emerald Casino, Inc., 867 F.3d at 757;

1472 N. Milwaukee, Ltd., 2013 IL App (1st) 121191, ¶ 31).

Consequential damages most often occur where the

plaintiff incurs liability to a third party because of the

defendant’s breach, such as where the defendant’s

breach resulted in the plaintiff being unable to comply

with a collateral agreement it had with the third party.

It is not necessary to have foreseen the exact breach

in issue. Plaintiffs must show only that the alleged

consequential damages were a foreseeable and probable

result of any breach (Merix Pharm. Corp.v.Clinical

Supplies Mgmt., Inc., 59 F. Supp. 3d 865, 882 (N.D. Ill.

2014) (applying Illinois law)).

When pleading consequential damages, the type of

consequential damages sought must be speciﬁed

(Williamsv.Country Mut. Ins. Co., 2015 IL App (1st)

142534-U, ¶ 23 (unpublished order under Ill. S. Ct. R.

23); Clarkv.Standard Life & Accident Ins. Co., 68 Ill. App.

3d 977, 986 (1979); but see Heller Int’l Corp.v.Sharp,

839 F. Supp. 1297, 1303 (N.D. Ill. 1993) (federal pleading

standards do not require such speciﬁc allegations)).

A court also may award an injured party its expenditures

in partly performing its own obligations under the contract

as an alternative measure of damages where the usual

method would be too speculative (Merry Gentleman,

LLCv.George & Leona Prods., Inc., 799 F.3d 827, 829

(7th Cir. 2015) (applying Illinois law); Herbert W. Jaeger &

Assocs.v.Slovak Am. Charitable Ass’n, 156 Ill. App. 3d 106,

112-13 (1987)).

Liquidated Damages

Contracts may contain a liquidated damages clause,

which determines in advance the measure of damages

were there to be breach. Courts generally enforce

liquidated damages clauses if:

• The parties agreed in advance to the amount of

damages that the non-breaching party may recover.

• The amount of liquidated damages was reasonable at

the time of contracting and bears some relation to the

damages that might be sustained.

• Actual damages would be uncertain in amount and

difﬁcult to prove.

(Berggrenv.Hill, 401 Ill. App. 3d 475, 479-80 (2010);

Jameson Realty Grp.v.Kostiner, 351 Ill. App. 3d 416, 423

(2004).)

A liquidated damages clause is not enforceable if:

• The clause is unconscionable.

• The clause violates public policy in some way, such as

where the clause is a penalty or forfeiture.

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Contract Basics for Litigators: Illinois

• The amount set out in the clause is grossly

disproportionate to the amount of damages incurred.

(Zerjalv.Daech & Bauer Constr., Inc., 405 Ill. App. 3d 907,

913 (2010); Jameson Realty Grp., 351 Ill. App. 3d at 423.)

Courts strike down liquidated damages as penalty

clauses most frequently where they specify the same

damages regardless of the severity of the breach (GK Dev.,

Inc.v.Iowa Malls Fin. Corp., 2013 IL App (1st) 112802, ¶ 73).

18. What equitable or other non-legal

remedies are typically available to the non-

breaching party in your jurisdiction?

Under Illinois law, if money damages are unavailable or

inadequate to compensate the plaintiff for its loss, a court

may award equitable relief for breach of contract. The

most common equitable remedies include:

• Injunctive relief.

• Rescission.

• Reformation.

• Speciﬁc performance.

In addition, a party to a contract may seek a declaratory

judgment asking the court to rule on the rights and

other legal relations of the parties (735 ILCS 5/2-701).

Declaratory judgment and breach of contract actions are

inconsistent claims involving different legal concepts and

seeking different forms of redress. Declaratory judgments

are designed to prevent extensive litigation by settling

the rights of the parties after a controversy arises but

before they have a claim for relief (BMO Harris Bank,

N.A.v.Jackson Towers Condo. Ass’n, 2018 IL App (1st)

170781, ¶ 24).

Defenses to Breach of Contract

19. Identify common defenses to a breach

of contract action that your jurisdiction

recognizes.

Defenses to Contract Formation

The following defenses challenge the formation of the

contract itself:

• Ambiguity

• Capacity of the parties.

• Duress.

• Coercion or undue inﬂuence.

• Fraudulent inducement.

• Illegality of the object of the contract.

• Mutual mistake.

• Unilateral mistake.

• Unconscionability.

Defenses to Breach of the Contract

The following common afﬁrmative defenses relate to the

merits of the breach of contract claim:

• Accord and satisfaction.

• Anticipatory breach.

• Arbitration and award.

• Economic duress.

• Failure of consideration.

• Failure to mitigate, if there is no liquidated damages

clause.

• Frustration of purpose.

• Impossibility.

• Laches.

• Ratiﬁcation.

• Statute of frauds.

• Statute of limitations.

• Waiver.

Defenses to Damages

The following defenses challenge the damages the

plaintiff seeks:

• Duplicative damages or improper double recovery.

• Damages were replaced or indemniﬁed in whole or in

part by collateral sources.

• Damages are superseded by contractual liquidated

damages clause.

• Damages not available for breach of contract (for

example, punitive damages).

• Failure to mitigate damages, if there is no liquidated

damages clause.

Contract Basics for Litigators: Illinois

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• The plaintiff cannot prove damages because they are:

– speculative or not reasonably certain;

– not directly traceable to the breach;

– too remote;

– the result of intervening causes; or

– damages that the parties did e not contemplate when

they made the contract.

For more information on each of these and other defenses,

including procedural defenses, see Breach of Contract

Defenses Checklist (IL).