PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606
September 8, 2022
MEMORANDUM
TO: Priya Anand, Partner
FROM: Jeffrey Park, Associate
RE: Illinois Law on Contract Interpretation as Applied to Surcharge Pass-Through Clauses — Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division
MATTER NO.: 1005-00005
CLIENT: Nexford Industrial Holdings Inc.
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I. Introduction and Purpose of Memorandum
This memorandum analyzes Illinois law governing the interpretation and enforcement of surcharge pass-through clauses in commercial supply agreements. It has been prepared in connection with the defense of our client, Nexford Industrial Holdings Inc. ("Nexford" or "NIH"), in the above-captioned action filed by Cardinal Peak Industries ("Cardinal Peak" or "CPI") on August 8, 2022, in the Circuit Court of Cook County, Illinois, County Department, Law Division.
Cardinal Peak is a Colorado limited liability company headquartered in Pueblo, Colorado, that manufactures and distributes specialty steel coil products. Cardinal Peak alleges that Nexford breached the Master Supply Agreement dated January 15, 2020, bearing reference number MSA-NIH-CPI-2020-001 (the "MSA"), by failing to pay $4.73 million in raw-material surcharges invoiced between March 2021 and May 2022. Cardinal Peak's Complaint advances three causes of action: (1) breach of contract; (2) unjust enrichment; and (3) account stated. The MSA is governed by Illinois law pursuant to Section 14.3 thereof.
This memorandum addresses three principal legal questions relevant to Nexford's defenses against the breach of contract claim, each of which corresponds to a distinct category of disputed surcharges:
1. Condition Precedent / Late Notice Defense. Whether the 15-business-day Surcharge Notice requirement under Section 7.4(a) of the MSA operates as a condition precedent to Cardinal Peak's entitlement to surcharge payments, and the legal consequences of Cardinal Peak's non-compliance with that requirement. This defense applies to 7 of the 14 disputed months and corresponds to approximately $2.18 million in claimed surcharges.
2. Methodology Deviation Defense. Whether Cardinal Peak's deviation from the Exhibit C Surcharge Methodology — specifically, its use of an internal "blended cost" metric rather than the contractually specified Ferrous Scrap Index and Industrial Energy Cost Index — constitutes a breach of the MSA that relieves Nexford of its payment obligation for the excess amounts. This defense corresponds to approximately $1.47 million in excess charges attributable to the non-compliant methodology.
3. Cap Exceedance Defense. Whether the 12% monthly surcharge cap under Section 7.4(c) is enforceable as written, and what legal effect the absence of Nexford's prior written consent has on surcharges exceeding the cap. This defense applies to four months during the disputed period and corresponds to approximately $1.08 million in surcharges invoiced above the contractual cap.
Taken together, these three defense categories account for the entirety of the $4.73 million in dispute, though some overlap exists among the categories for certain months. Nexford's primary litigation position is that, after proper application of all three defenses, it owes at most an additional $0.21 million beyond the $1.68 million already paid during the disputed period. This memorandum also briefly addresses Cardinal Peak's unjust enrichment and account stated claims, which we believe are subject to early dismissal.
The analysis below is organized as follows: Section II sets forth the factual background relevant to the legal analysis; Section III discusses general principles of contract interpretation under Illinois law; Sections IV through VII address each of the three principal defenses in detail, along with the enforceability of the Exhibit C Surcharge Methodology; Sections VIII and IX briefly analyze the account stated and unjust enrichment claims; Section X summarizes our conclusions and recommendations for next steps; and Section XI provides an appendix of key contractual provisions referenced throughout this memorandum.
II. Factual Background Relevant to the Legal Analysis
A. The Master Supply Agreement
On January 15, 2020, Nexford and Cardinal Peak entered into the MSA for the supply of hot-rolled coil ("HRC") and cold-rolled coil ("CRC") steel products. The MSA was executed following several months of negotiation between the parties' respective commercial and legal teams and was drafted with the assistance of outside counsel on both sides.
Nexford is a Delaware corporation with its principal place of business in Waukegan, Illinois. For fiscal year 2022, Nexford reported approximately $287 million in revenue. Nexford is a manufacturer of industrial equipment and component assemblies for the heavy machinery, construction, and agricultural equipment sectors, and purchases steel coil products as a primary raw material input.
Cardinal Peak is a Colorado limited liability company with its principal place of business in Pueblo, Colorado. For fiscal year 2022, Cardinal Peak reported approximately $415 million in revenue. Cardinal Peak operates steel service centers and manufactures specialty steel coil products, including HRC and CRC, for distribution to industrial purchasers throughout the United States.
The MSA has a three-year initial term running through January 14, 2023, with automatic renewal for successive one-year periods absent written notice of termination delivered by either party no later than 180 days prior to the expiration of the then-current term. As of the date of this memorandum, neither party has delivered a notice of termination, and the MSA remains in effect.
The MSA establishes base pricing for the two product categories: HRC at $620 per ton and CRC at $740 per ton. These 2020 base prices are subject to quarterly adjustment pursuant to Section 7.2 of the MSA, which provides a formulaic mechanism for adjusting the base price in accordance with published market indices. The estimated annual volume under the MSA is approximately 18,000 tons of HRC and 6,500 tons of CRC, totaling approximately 24,500 tons per year. At the 2020 base prices, this volume represents an estimated annual spend of approximately $15.97 million.
The MSA is a comprehensive commercial agreement containing, among other things, provisions governing product specifications, delivery terms, quality assurance and inspection, force majeure, indemnification, limitation of liability, intellectual property, confidentiality, insurance, and dispute resolution. The pricing and surcharge provisions at issue in this dispute are contained primarily in Section 7 (Pricing) and Exhibit C (Surcharge Methodology) of the MSA. The dispute resolution provision in Section 14.3 specifies Illinois governing law, mandatory mediation in Chicago, Illinois, and, if mediation fails, litigation in the courts of Cook County, Illinois.
B. The Surcharge Clause — Section 7.4
Section 7.4 of the MSA is the central provision at issue in this dispute. It permits Cardinal Peak, as Seller, to pass through to Nexford, as Buyer, documented raw-material surcharges incurred during the applicable invoice period. The surcharges are intended to account for fluctuations in the costs of three categories of raw-material inputs: (i) ferrous scrap; (ii) energy; and (iii) alloys. The surcharge pass-through mechanism was included in the MSA to balance the interests of both parties — providing Cardinal Peak with a means of recovering cost increases attributable to market volatility while protecting Nexford through structured limitations and verification procedures.
Section 7.4(a) — Notice Requirement. Section 7.4(a) requires Cardinal Peak to deliver a Surcharge Notice, together with supporting documentation, to Nexford no later than fifteen (15) business days after the end of the applicable month. The Surcharge Notice must identify the specific surcharge components (scrap, energy, and/or alloy), the applicable index values, the calculation methodology, and the resulting surcharge amount for each product category. The provision states that Cardinal Peak "may pass through documented raw-material surcharges ... provided that (a) Seller delivers to Buyer a Surcharge Notice with supporting documentation no later than fifteen (15) business days after the end of the applicable month" (emphasis added). The significance of the "provided that" language is discussed in detail in Section IV below.
Exhibit C — Surcharge Methodology. The Surcharge Methodology set forth in Exhibit C to the MSA prescribes the specific calculation approach that Cardinal Peak must follow when determining surcharge amounts. The methodology requires use of two published indices: (i) the Ferrous Scrap Index, as reported by Drayton Partners LLC (formerly SPI); and (ii) the Industrial Energy Cost Index. Surcharges are calculated by determining the difference between the actual published index value for the applicable period and agreed baseline values. The agreed baselines are: scrap cost of $340 per ton and energy cost of $48 per ton. The resulting per-ton surcharge for each component is then multiplied by the tonnage delivered during the applicable period to determine the aggregate surcharge amount. The Exhibit C methodology was specifically negotiated to provide an objective, verifiable, and standardized basis for surcharge calculations, as opposed to a cost-plus model that would require disclosure and audit of Cardinal Peak's proprietary cost data.
Section 7.4(c) — Monthly Surcharge Cap. Section 7.4(c) imposes a ceiling on the aggregate monthly surcharge that Cardinal Peak may invoice without obtaining Nexford's prior written consent. Specifically, the monthly aggregate surcharge may not exceed 12% of the applicable Base Price for the relevant product category. For HRC, the 12% cap translates to $74.40 per ton (12% × $620/ton); for CRC, the cap translates to $88.80 per ton (12% × $740/ton). The provision expressly states that surcharges exceeding the cap require "prior written consent of Buyer," establishing a clear and unambiguous threshold beyond which Cardinal Peak may not invoice without first obtaining Nexford's affirmative written approval.
Section 7.4(d) — Dispute Procedure. Section 7.4(d) provides Nexford with 30 calendar days from receipt of a Surcharge Notice to notify Cardinal Peak of any disputed surcharges. If the dispute is not resolved within an additional 15-business-day period, it escalates to the senior officers designated by each party, and thereafter to mandatory mediation under Section 14.3. During the pendency of a dispute, Nexford is required to pay the undisputed portion of the applicable invoice.
C. The Dispute
The dispute between the parties relates to the 15-month period from March 2021 through May 2022. Of these 15 months, 14 are in dispute; the April 2021 surcharge was paid by Nexford in full and is not contested by either party. The April 2021 surcharge was timely noticed by Cardinal Peak, calculated in accordance with the Exhibit C methodology, and fell within the 12% cap — it is the sole month during the relevant period that was compliant in all respects.
During the disputed 14-month period, Cardinal Peak invoiced total surcharges of $6.41 million. Nexford paid $1.68 million of this amount, representing surcharges that Nexford determined, upon review, to have been validly noticed and properly calculated within the scope of the MSA. Cardinal Peak claims that $4.73 million remains unpaid.
Nexford's position, which forms the basis of its anticipated affirmative defenses, is as follows:
1. Late Notice (7 of 14 months; $2.18 million). For seven of the 14 disputed months, Cardinal Peak failed to deliver Surcharge Notices within the 15-business-day deadline prescribed by Section 7.4(a). The lateness ranged from several days to, in certain months, more than three weeks beyond the deadline. Nexford contends that timely delivery of the Surcharge Notice is a condition precedent to Cardinal Peak's right to collect surcharges, and that Cardinal Peak's failure to satisfy this condition bars recovery for those months.
2. Methodology Deviation ($1.47 million). Across multiple months during the disputed period, Cardinal Peak deviated from the Exhibit C Surcharge Methodology by using an internal "blended cost" metric — an average of Cardinal Peak's actual procurement costs across multiple raw-material sources — rather than referencing the published Ferrous Scrap Index and Industrial Energy Cost Index specified in Exhibit C. This non-compliant methodology systematically produced higher surcharge figures than the Exhibit C methodology would have yielded, resulting in approximately $1.47 million in excess charges.
3. Cap Exceedance (4 months; $1.08 million). For four months during the disputed period, Cardinal Peak invoiced surcharges exceeding the 12% monthly cap established by Section 7.4(c). Nexford did not provide prior written consent for any exceedance of the cap. The aggregate excess above the cap for these four months totals approximately $1.08 million.
As noted, some overlap exists among these three categories; certain months are affected by more than one deficiency (e.g., a late-noticed surcharge that also exceeded the cap). Taking into account the overlap, Nexford's primary litigation position is that its total obligation for the disputed period, properly calculated in accordance with the MSA, is approximately $1.89 million — only $0.21 million more than the $1.68 million already paid.
In addition to its breach of contract claim, Cardinal Peak asserts claims for unjust enrichment (Count II) and account stated (Count III). Cardinal Peak's retained expert, Dr. Theodore Voss of Pinnacle Economics Group LLC, has submitted a preliminary damages estimate of $5.11 million, consisting of $4.73 million in claimed principal damages and $0.38 million in prejudgment interest calculated at the statutory rate. Nexford has retained Dr. Anita Rosenthal of Meridian Bridge Consulting LLC (engagement effective December 12, 2022) to prepare a rebuttal expert report, including a detailed recalculation of the surcharges under the correct Exhibit C methodology.
III. Illinois Law on Contract Interpretation — General Principles
A. Standard of Interpretation
Under Illinois law, a court's primary objective in construing a contract is to give effect to the intent of the parties at the time they entered into the agreement. Gallagher v. Lenart, 226 Ill. 2d 208, 232–33 (2007); Air Safety, Inc. v. Teachers Realty Corp., 185 Ill. 2d 457, 462 (1999). The intent of the parties is to be determined, in the first instance, from the language of the contract itself. Avery v. Brightmoor Indemnity Co., 216 Ill. 2d 100, 129 (2005).
Where the language of the contract is clear and unambiguous, the court must enforce the contract as written, without resorting to extrinsic evidence of the parties' intent. Central Ill. Light Co. v. Dunmore Indemnity Co., 213 Ill. 2d 141, 153 (2004); Thompson v. Gordon, 241 Ill. 2d 428, 441 (2011). A contract is not rendered ambiguous merely because the parties disagree as to its meaning; rather, ambiguity exists only if the contract language is susceptible to more than one reasonable interpretation. Quake Constr., Inc. v. Am. Airlines, Inc., 141 Ill. 2d 281, 288 (1990).
In applying these principles, Illinois courts give contract terms their plain and ordinary meaning. Nicor, Inc. v. Associated Elec. & Gas Ins. Servs., Ltd., 223 Ill. 2d 407, 416 (2006). Technical terms are given their technical meaning if the context indicates that the parties so intended. The contract must be construed as a whole, giving meaning and effect to every provision, clause, and word. Martindell v. Lake Shore Nat'l Bank, 15 Ill. 2d 272, 283 (1958); Coles-Moultrie Elec. Coop. v. City of Sullivan, 304 Ill. App. 3d 153, 158 (4th Dist. 1999). No provision should be interpreted in a manner that renders another provision meaningless or superfluous. Rich v. Principal Life Ins. Co., 226 Ill. 2d 359, 375 (2007).
It is significant to this analysis that the MSA is a negotiated commercial agreement between two sophisticated commercial entities. Nexford, with approximately $287 million in fiscal year 2022 revenue, and Cardinal Peak, with approximately $415 million in fiscal year 2022 revenue, are both substantial enterprises with access to experienced legal counsel. Both parties were represented by counsel during the negotiation and execution of the MSA. Under Illinois law, when a contract is negotiated at arm's length between sophisticated commercial parties, courts are particularly reluctant to find ambiguity or to construe the contract in a manner inconsistent with its plain language. Omnitrus Merging Corp. v. Ill. Tool Works, Inc., 256 Ill. App. 3d 31, 37 (1st Dist. 1993). The rule of contra proferentem — construing ambiguities against the drafter — has limited application in the context of a fully negotiated agreement between sophisticated parties of comparable bargaining power. Cent. Ill. Light Co., 213 Ill. 2d at 157.
B. Illinois Commercial Code (810 ILCS 5/)
The MSA is a contract for the sale of goods — specifically, hot-rolled coil and cold-rolled coil steel products. As such, it is governed by Article 2 of the Illinois Uniform Commercial Code (the "UCC"), codified at 810 ILCS 5/2-101 et seq. UCC Article 2 applies to "transactions in goods," defined broadly to include movable items identified to the contract for sale. 810 ILCS 5/2-105. Steel coil products plainly qualify as "goods" under this definition.
UCC Article 2 is directly applicable to the price-adjustment and surcharge pass-through provisions at issue in this dispute. The UCC recognizes and enforces the parties' freedom to establish their own pricing mechanisms, including mechanisms that adjust the contract price based on external market indices or raw-material cost fluctuations. See 810 ILCS 5/2-305 (open price terms); 810 ILCS 5/2-305(1)(a) ("The parties if they so intend can conclude a contract for sale even though the price is not settled.").
Importantly, the UCC's gap-filling provisions — including those relating to open price terms, implied warranties, and course-of-performance interpretation — are supplementary in nature. They apply only where the parties have not otherwise agreed. Where the parties have expressly agreed to a pricing mechanism, as they have here through Exhibit C to the MSA, the express terms of the contract control and the UCC's gap-fillers do not override them. 810 ILCS 5/1-302(a) ("[T]he effect of provisions of [the UCC] may be varied by agreement . . ."); see also Official Comment 1 to UCC § 2-305 ("This section applies when the price term is left open on the making of an agreement. . . . It is not applicable when the parties intend not to be bound unless the price be fixed or agreed . . . .").
Under the UCC, course of dealing, course of performance, and usage of trade may be considered in interpreting the parties' agreement. 810 ILCS 5/1-303. However, these supplementary interpretive tools cannot override express, unambiguous contract terms. 810 ILCS 5/1-303(e)(1) ("express terms prevail over course of performance, course of dealing, and usage of trade"); see also Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772, 780 (9th Cir. 1981) (discussing the hierarchy of interpretive sources under UCC § 1-303). Accordingly, even if Cardinal Peak could demonstrate that its "blended cost" methodology was consistent with some usage of trade in the steel industry, such evidence cannot override the express requirement of Exhibit C that surcharges be calculated using the Ferrous Scrap Index and the Industrial Energy Cost Index.
C. Parol Evidence and Extrinsic Evidence
Illinois follows the "four-corners rule" with respect to parol evidence. Under this rule, if the language of a written contract is unambiguous, extrinsic evidence is inadmissible to vary, modify, or contradict its terms. Air Safety, Inc., 185 Ill. 2d at 462; Western Ill. Oil Co. v. Thompson, 26 Ill. 2d 287, 291 (1962). The four-corners rule is codified, in part, by the UCC's parol evidence provision at 810 ILCS 5/2-202, which provides that terms set forth in a writing "intended by the parties as a final expression of their agreement" may not be contradicted by evidence of prior agreements or contemporaneous oral agreements.
The application of this rule to the present dispute is straightforward. The Surcharge Methodology set forth in Exhibit C prescribes a specific, detailed calculation approach using published indices — the Ferrous Scrap Index (as reported by Drayton Partners LLC) and the Industrial Energy Cost Index — applied against agreed baselines of $340 per ton for scrap costs and $48 per ton for energy costs. The MSA further contains a standard integration clause (Section 14.1), providing that the MSA, together with its exhibits and schedules, constitutes the entire agreement between the parties and supersedes all prior and contemporaneous agreements, representations, and understandings, whether written or oral.
Cardinal Peak's use of an internal "blended cost" metric — which is not referenced in Exhibit C or anywhere else in the MSA — is not supported by the contract language. To the extent Cardinal Peak seeks to introduce extrinsic evidence (such as pre-contractual negotiations, industry practice, or communications between the parties) to argue that the "blended cost" methodology was an acceptable alternative to the Exhibit C methodology, such evidence should be excluded under the four-corners rule and the parol evidence rule. The contract language is clear, specific, and unambiguous: surcharges are to be calculated using published indices and agreed baselines, not internal cost averages. No extrinsic evidence should be admitted to rewrite or supplement that methodology.
IV. Condition Precedent Analysis — Section 7.4(a) Notice Requirement
A. Conditions Precedent Under Illinois Law
A condition precedent is "an act or event, other than a lapse of time, that must occur before a duty of performance arises." Beary v. City of Champaign, 262 Ill. App. 3d 835, 839 (4th Dist. 1994); see also Restatement (Second) of Contracts § 224 (1981). Where a contractual obligation is subject to a condition precedent, the obligor's duty to perform does not arise unless and until the condition is satisfied. MidAmerica Bank, FSB v. Charter One Mortg. Corp., 394 Ill. App. 3d 587, 595 (1st Dist. 2009). The non-occurrence of a condition precedent operates not as a breach of the contract but as a discharge of the obligor's duty. Shearson Lehman Bros., Inc. v. Wasatch Bank, 139 Ill. 2d 284, 291 (1990).
Illinois courts draw a fundamental distinction between conditions precedent and covenants. A condition precedent must be strictly complied with before the other party's duty of performance arises; failure to satisfy the condition excuses the other party's performance entirely. A covenant, by contrast, is a promise, the breach of which gives rise to a claim for damages but does not excuse the other party's performance. CNA Int'l, Inc. v. Posteriori, 118 Ill. App. 3d 527, 531 (1st Dist. 1983). The characterization of a provision as a condition precedent or a covenant turns primarily on the language used by the parties. Inland Real Estate Corp. v. Christoph, 107 Ill. App. 3d 183, 187 (2d Dist. 1982).
Certain words and phrases are recognized as classic condition precedent language under Illinois law. The phrases "provided that," "on the condition that," "if and only if," "subject to," and "on condition that" are typically understood to create conditions precedent. See Harris v. Ill. State Bd. of Elections, 2021 IL App (4th) 200345, ¶ 23 (discussing "provided that" as condition precedent language); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 765 (7th Cir. 2010) (applying Illinois law). Conversely, language of promise or obligation — such as "shall," "agrees to," "will," or "covenants that" — typically creates a covenant rather than a condition. See Pioneer Trust & Sav. Bank v. Lucky Stores, Inc., 91 Ill. App. 3d 573, 577 (1st Dist. 1980).
Where the language is ambiguous or the parties' intent is unclear, Illinois courts apply a presumption against forfeiture — that is, the court will prefer a construction that treats the provision as a covenant rather than a condition precedent, to avoid the harsh result of total forfeiture. Sahadi v. Cont'l Ill. Nat'l Bank & Trust Co., 264 Ill. App. 3d 213, 225 (1st Dist. 1994). However, this presumption does not override clear condition precedent language; it applies only where the classification is genuinely doubtful.
B. Application to Section 7.4(a)
Section 7.4(a) of the MSA states, in relevant part:
"Seller may pass through documented raw-material surcharges incurred during the applicable invoice period, provided that (a) Seller delivers to Buyer a Surcharge Notice with supporting documentation no later than fifteen (15) business days after the end of the applicable month . . ." (emphasis added).
The use of the phrase "provided that" is classic condition precedent language under Illinois law. The structure of the provision makes clear that Cardinal Peak's right to pass through surcharges is not absolute; rather, it is contingent upon, and arises only upon, the satisfaction of the conditions that follow the "provided that" clause. The first of those conditions — timely delivery of a Surcharge Notice with supporting documentation — is expressly stated and is subject to a specific, measurable deadline: 15 business days after the end of the applicable month.
Under the principles discussed in Section IV.A above, we believe the 15-business-day notice requirement in Section 7.4(a) should be classified as a condition precedent to Cardinal Peak's right to collect surcharges, rather than a mere covenant. The "provided that" language is precisely the type of conditional phrasing that Illinois courts have repeatedly held creates a condition precedent. See, e.g., Harris, 2021 IL App (4th) 200345, ¶ 23; Reger Dev., 592 F.3d at 765; CNA Int'l, 118 Ill. App. 3d at 531.
If the notice requirement is properly classified as a condition precedent, Cardinal Peak's failure to timely deliver Surcharge Notices for 7 of the 14 disputed months is dispositive as to those months: the condition was not satisfied, Nexford's duty to pay the surcharges for those months never arose, and Cardinal Peak cannot recover the $2.18 million in surcharges associated with those months — regardless of whether the underlying raw-material cost increases were actually incurred. This result follows from the fundamental principle that non-occurrence of a condition precedent does not give rise to a breach of the contract by either party; it simply means that the conditional duty never came into existence.
The strict compliance standard further supports Nexford's position. Illinois courts have held that conditions precedent must be strictly performed unless the contract provides otherwise or the non-occurrence of the condition is excused by waiver, estoppel, or other equitable doctrines. See Meurer Steel Barrel Co. v. Martin, 1 F.2d 687, 688 (7th Cir. 1924) (applying Illinois law); Beary, 262 Ill. App. 3d at 839. The MSA does not contain any provision excusing late delivery of a Surcharge Notice or permitting Cardinal Peak to cure non-compliance after the 15-business-day deadline has passed. Nor does the MSA provide for any grace period. Accordingly, strict compliance with the 15-business-day deadline should be required.
It bears emphasis that the notice requirement serves a substantive commercial purpose — it provides Nexford with timely information necessary to (i) verify the surcharge calculations, (ii) evaluate whether to dispute the surcharges under Section 7.4(d), (iii) plan and budget for upcoming payment obligations, and (iv) make informed sourcing and production decisions. Late delivery of a Surcharge Notice deprives Nexford of these benefits and disrupts its internal budgeting and cash-flow management processes. The parties' decision to include a specific, time-bounded notice requirement, introduced by "provided that" language, reflects a deliberate allocation of the timing risk to Cardinal Peak.
C. Counter-Arguments and Risk Assessment
While we believe the condition precedent classification is well-supported, we must address several counter-arguments that Cardinal Peak is likely to raise:
Substantial Compliance. Cardinal Peak may argue that strict compliance with the 15-business-day deadline is not required and that its notices substantially complied with Section 7.4(a) where the delay was marginal. Some Illinois courts have applied a "substantial compliance" standard where the purpose of the condition — here, providing the buyer with timely notice and supporting documentation — was adequately served despite minor deviations from the strict terms. See, e.g., Merrion v. Am. Fid. Fire Ins. Co., 232 Ill. App. 3d 220, 226 (1st Dist. 1992) (applying substantial compliance doctrine to notice condition in insurance contract). This argument is strongest for months where the notice was only marginally late (e.g., one or two business days beyond the deadline). It is weakest for months where the delay extended to three weeks or more. In either event, the "provided that" language, the negotiated nature of the MSA, and the absence of any curative provision in the contract weigh against applying a relaxed standard.
Waiver. Cardinal Peak may argue that Nexford waived the timeliness requirement by accepting and paying certain surcharges during the disputed period. In particular, Cardinal Peak may point to Nexford's full payment of the April 2021 surcharge as evidence that Nexford did not insist on strict compliance with Section 7.4(a). The waiver argument is addressed in detail in Section V below; for present purposes, we note that the April 2021 surcharge was both timely noticed and properly calculated, and therefore Nexford's payment of that surcharge does not constitute acceptance of late-noticed surcharges.
Covenant vs. Condition Classification. Cardinal Peak may argue that the notice requirement is more properly classified as a covenant — a promise by Cardinal Peak to provide timely notice — rather than a condition precedent. Under this characterization, Nexford's remedy for late notice would be a claim for damages resulting from the late delivery, not a discharge of Nexford's payment obligation. Cardinal Peak would argue that Nexford suffered no actual prejudice from the late notices (because the surcharges were based on objective data available from published indices) and therefore has no cognizable damages claim. This argument is undermined by the "provided that" language, which is the hallmark of condition precedent drafting. Moreover, even if the provision could be characterized as a covenant, Cardinal Peak would bear the burden of demonstrating that its breach (late notice) did not prejudice Nexford — a difficult showing given Nexford's need for timely surcharge data for budgeting, cash flow management, and sourcing decisions.
Risk Assessment. Overall, the condition precedent defense is strong. The "provided that" language in Section 7.4(a) is clear and is recognized under Illinois law as classic condition precedent language. The strict compliance standard applies. The counter-arguments — substantial compliance and waiver — present some risk, particularly for months where the notice was only marginally late, but these risks are manageable, especially if the MSA contains an anti-waiver clause (discussed in Section V below). For months where the notice was significantly late (more than one week beyond the deadline), the defense is particularly robust.
V. Waiver Doctrine Under Illinois Law
A. Elements of Waiver
Under Illinois law, waiver is defined as the voluntary relinquishment of a known right. Ryder v. Bank of Hickory Hills, 146 Ill. 2d 98, 104 (1991); Whalen v. K-Mart Corp., 166 Ill. App. 3d 339, 343 (1st Dist. 1988). To establish waiver, a party must demonstrate that the waiving party: (1) had knowledge of the right in question; and (2) acted in a manner that evidences an intentional relinquishment of that right. Ultsch v. Ill. Mun. Ret. Fund, 226 Ill. 2d 169, 188 (2007); Vine St. Clinic v. HealthLink, Inc., 222 Ill. 2d 276, 296 (2006).
Waiver may be either express or implied. Express waiver occurs when a party explicitly relinquishes a known right through a clear and unequivocal statement or written communication. Implied waiver arises from conduct that is inconsistent with an intent to enforce the right, such that the other party may reasonably infer that the right has been relinquished. Zimmerman v. Northfield Real Estate, Inc., 156 Ill. App. 3d 154, 163 (1st Dist. 1986). The burden of proving waiver rests on the party asserting it — here, Cardinal Peak. Ryder, 146 Ill. 2d at 104.
Critically, a party's acceptance of late or non-conforming performance on one occasion does not necessarily constitute a waiver of the right to demand strict performance on future occasions. Forest Preserve Dist. of DuPage Cnty. v. First Nat'l Bank of Franklin Park, 2011 IL App (2d) 100354, ¶ 29. Illinois courts have recognized that a single instance of forbearance is generally insufficient to establish a pattern of conduct from which waiver may be implied, particularly where the contract contains an anti-waiver clause. Id.; Strathmore Life Insurance v. Livorsi Marine, Inc., 222 Ill. 2d 303, 315 (2006).
B. Anti-Waiver Provisions
Many negotiated commercial supply agreements contain anti-waiver or no-waiver clauses, and we should confirm whether the MSA includes such a provision. An anti-waiver clause typically provides that the failure of either party to enforce any provision of the agreement on any occasion shall not be deemed a waiver of the right to enforce that provision on any subsequent occasion. Such clauses are commonly found in the miscellaneous or general provisions section of commercial agreements and may be stated in various forms.
If the MSA contains an anti-waiver clause — which we believe is likely, given the sophistication of the parties and the comprehensiveness of the agreement — it will significantly strengthen Nexford's position that its payment of the April 2021 surcharge (which, again, was not a disputed month and was timely noticed and properly calculated) did not waive the timeliness requirement for subsequent months. Illinois courts generally enforce anti-waiver clauses and give them substantial weight in determining whether a party's prior course of conduct constitutes waiver. See Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1292 (7th Cir. 1989) (applying Illinois law and enforcing anti-waiver clause); Old Second Nat'l Bank v. Boucher, 2014 IL App (2d) 130582, ¶ 46.
It is important to note, however, that anti-waiver clauses are not absolute. Illinois courts have recognized that repeated, consistent waivers over an extended period may overcome even an express anti-waiver clause, on the theory that the anti-waiver clause itself may be waived by the parties' course of conduct. See Strathmore Life Insurance, 222 Ill. 2d at 316; Am. Ambassador Cas. Co. v. City of Darien, 286 Ill. App. 3d 599, 604 (2d Dist. 1997). However, this exception is narrowly applied and requires a showing of a prolonged, consistent pattern of waiver — not merely an isolated instance of forbearance.
C. Application to Nexford's Conduct
Applying these principles to the facts of this case, Nexford's conduct does not support a finding of waiver. The specific considerations are as follows:
First, Nexford's payment of the April 2021 surcharge in full does not constitute waiver of the Section 7.4(a) notice requirement for the 14 remaining disputed months. The April 2021 surcharge was timely noticed by Cardinal Peak and was properly calculated in accordance with the Exhibit C methodology. It is not a disputed month. Nexford's payment of a compliant surcharge invoice cannot reasonably be interpreted as a waiver of the right to demand compliance for subsequent, non-compliant invoices. There is simply no basis for inferring from Nexford's payment of a valid invoice that Nexford intended to relinquish its right to receive timely notice in the future.
Second, Nexford consistently disputed late-noticed surcharges throughout the 14-month disputed period. The record demonstrates that Nexford timely exercised its dispute rights under Section 7.4(d), notifying Cardinal Peak of disputed surcharges within 30 calendar days of receipt of each non-compliant Surcharge Notice. This pattern of consistent, contemporaneous objection is fundamentally inconsistent with any inference of waiver. A party that disputes non-compliance in real time cannot be said to have voluntarily relinquished its right to demand compliance.
Third, Nexford's partial payments totaling $1.68 million during the disputed period were directed exclusively at surcharges that Nexford determined, upon independent review, to have been validly noticed and properly calculated in accordance with the MSA. These payments were not blanket acceptances of Cardinal Peak's invoiced amounts. To the contrary, they reflect a careful, line-by-line assessment of each month's surcharges, with payment limited to amounts that met the contractual requirements. This selective payment approach is inconsistent with waiver and affirmatively demonstrates Nexford's intent to enforce the contractual requirements.
Taken together, these facts establish that Nexford did not waive the Section 7.4(a) notice requirement. Its conduct throughout the disputed period was consistent with an intent to enforce the contractual requirements, and no reasonable inference of voluntary relinquishment may be drawn.
D. Waiver vs. Estoppel Distinction
It is worth briefly distinguishing waiver from the related doctrine of equitable estoppel under Illinois law, as Cardinal Peak may attempt to invoke either theory. While waiver involves the voluntary relinquishment of a known right, equitable estoppel requires a showing of detrimental reliance. Specifically, under Illinois law, equitable estoppel requires the following elements: (1) words or conduct by the party to be estopped that amount to a misrepresentation or concealment of material facts; (2) knowledge by the party to be estopped that the representations were untrue; (3) lack of knowledge of the truth by the party claiming estoppel; (4) reliance on the misrepresentation by the party claiming estoppel; (5) detrimental change of position as a result of such reliance; and (6) injury resulting from the detrimental change. Geddes v. Mill Creek Country Club, Inc., 196 Ill. 2d 302, 313–14 (2001).
Cardinal Peak would face significant difficulty establishing the detrimental reliance element. The surcharges at issue were incurred by Cardinal Peak as a result of its own procurement activities, not as a result of any conduct by Nexford. Cardinal Peak would need to demonstrate that it changed its position — for example, by incurring costs it would not otherwise have incurred — in reliance on some representation or conduct by Nexford suggesting that the Section 7.4(a) notice requirement would not be enforced. Given that Nexford consistently disputed non-compliant surcharges, there is no plausible basis for such a showing. Cardinal Peak's raw-material costs were incurred in the ordinary course of its manufacturing operations and would have been incurred regardless of Nexford's payment or non-payment of surcharges. A detrimental reliance argument is therefore weak.
VI. Enforceability of Price-Cap Provisions — Section 7.4(c)
A. General Enforceability of Price Caps Under Illinois Law and UCC Article 2
Price modification and adjustment clauses, including caps, ceilings, and floors, are enforceable under Illinois law when clearly stated in the contract. The freedom of contract is a foundational principle of Illinois law, and courts will give effect to the parties' agreed-upon pricing mechanisms absent fraud, duress, unconscionability, or violation of public policy. Kinkel v. Cingular Wireless LLC, 223 Ill. 2d 1, 22 (2006); Frank's Maint. & Eng'g, Inc. v. C.A. Roberts Co., 86 Ill. App. 3d 980, 988 (1st Dist. 1980).
Under UCC § 2-305, the parties to a sale-of-goods contract may agree upon a price or a means of determining price. 810 ILCS 5/2-305(1). When the parties have agreed upon a specific price-determination mechanism — as they have here through the combination of Section 7.4 and Exhibit C — that mechanism controls, and a court will not substitute its own judgment for the parties' bargained-for allocation of pricing risk. See Mathis v. Severin Corporation, 302 F.3d 448, 454–55 (5th Cir. 2002) (applying analogous UCC provision to oil-and-gas pricing formula); Empire Gas Corp. v. Am. Bakeries Co., 840 F.2d 1333, 1340 (7th Cir. 1988) (discussing UCC price-determination provisions under Illinois law).
Section 7.4(c) of the MSA provides, in clear and unambiguous terms, that the aggregate monthly surcharge shall not exceed 12% of the applicable Base Price for the relevant product category without the prior written consent of Buyer. The specific dollar amounts implied by this cap are readily calculable:
• HRC: 12% × $620/ton = $74.40/ton maximum monthly surcharge
• CRC: 12% × $740/ton = $88.80/ton maximum monthly surcharge
The cap serves an important commercial purpose: it limits Nexford's exposure to surcharge pass-throughs in any given month, providing cost predictability and budgetary certainty even during periods of high raw-material price volatility. The "prior written consent" requirement provides a safety valve — if raw-material costs spike beyond the contemplated range, Cardinal Peak may seek Nexford's consent to exceed the cap, and the parties may negotiate appropriate relief. But absent such consent, the cap is a hard ceiling.
The "prior written consent of Buyer" requirement is itself an additional condition that must be satisfied before Cardinal Peak may invoice surcharges exceeding the cap. The requirement of "written consent" is specific and unambiguous; oral consent, implied consent, or acquiescence by silence does not satisfy this requirement. Under Illinois law, where a contract requires a specific form of consent (e.g., written consent), that requirement must be strictly observed. See Schwinder v. Austin Bank of Chicago, 348 Ill. App. 3d 461, 468 (1st Dist. 2004); Lake Shore Country Club v. Brand, 339 Ill. 504, 513 (1929).
B. Application to the Disputed Surcharges
For four months during the disputed period, Cardinal Peak invoiced surcharges that exceeded the 12% cap established by Section 7.4(c). The aggregate amount by which the invoiced surcharges exceeded the cap for those four months totals approximately $1.08 million. Specifically, the surcharges invoiced for those months exceeded the cap by margins ranging from approximately 3% to 9% of the applicable Base Price — that is, the total surcharges invoiced ranged from approximately 15% to 21% of the Base Price, as against the contractual cap of 12%.
Nexford did not provide prior written consent for any exceedance of the 12% cap. There is no written communication — whether letter, email, or other document — in which Nexford authorized Cardinal Peak to invoice surcharges above the cap for any month. Nor is there any evidence that Cardinal Peak sought such consent prior to invoicing the excess amounts. Indeed, based on the materials reviewed to date, it appears that Cardinal Peak simply invoiced the full surcharge amounts without regard to the cap, and without requesting Nexford's consent to exceed it.
Under the plain language of the MSA, the surcharges exceeding the 12% cap are unenforceable absent Nexford's written consent. Cardinal Peak's failure to obtain such consent — and, indeed, its apparent failure even to seek it — means that Nexford's obligation to pay surcharges for those months is limited to the capped amount. The excess $1.08 million was invoiced without contractual authority and is not owed.
C. Cardinal Peak's Likely Counter-Arguments
Cardinal Peak is likely to raise several counter-arguments to the enforceability of the 12% cap. We address each below.
Unconscionability. Cardinal Peak may argue that the cap provision is unconscionable or commercially unreasonable given the extreme volatility in steel raw-material costs during 2021 and 2022. The post-pandemic period saw unprecedented disruptions in global supply chains, sharply increased demand for steel products, and dramatic spikes in scrap and energy prices. Cardinal Peak may contend that application of the 12% cap in this environment would produce a result so one-sided as to be unconscionable.
Under Illinois law, a finding of unconscionability requires both procedural and substantive unconscionability. Kinkel, 223 Ill. 2d at 22; Frank's Maint. & Eng'g, 86 Ill. App. 3d at 988. Procedural unconscionability relates to the circumstances surrounding the formation of the contract — whether there was a meaningful opportunity to negotiate, a significant disparity in bargaining power, or the use of unfair surprise. Substantive unconscionability relates to the terms themselves — whether they are so one-sided as to oppress or unfairly surprise a party.
Here, both prongs of the unconscionability analysis weigh heavily against Cardinal Peak. As to procedural unconscionability, the MSA was negotiated at arm's length between two sophisticated commercial enterprises of comparable bargaining power, each represented by counsel. There was no disparity in bargaining position, no adhesion, and no unfair surprise. Cardinal Peak had a full and fair opportunity to negotiate every term of the MSA, including the 12% cap. As to substantive unconscionability, the 12% cap is not inherently unreasonable — it represents a significant margin of flexibility above the base price, and it was coupled with the "prior written consent" mechanism that allows for higher surcharges when justified. A claim of unconscionability is very likely to fail.
Commercial Impracticability (UCC § 2-615). Cardinal Peak may argue that the unprecedented raw-material cost increases of 2021–2022 rendered performance under the cap provision commercially impracticable within the meaning of UCC § 2-615. 810 ILCS 5/2-615. Section 2-615 excuses a seller's delay in delivery or non-delivery when performance "has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made."
This argument fails for several reasons. First, UCC § 2-615 by its terms applies to a seller's performance obligations — delivery and tender of goods — not to pricing mechanisms that the seller voluntarily agreed to as part of a negotiated contract. The surcharge cap is a contractual pricing term, not a delivery obligation. Second, the MSA specifically contemplated market volatility in raw-material costs; the entire purpose of the surcharge pass-through mechanism was to address precisely this type of fluctuation. The cap was the parties' negotiated limit on the extent to which such fluctuations could be passed through without the buyer's consent. The existence of the surcharge mechanism itself demonstrates that market volatility was a "basic assumption" of the contract, not an unforeseeable contingency. Third, Cardinal Peak retained the contractual ability to seek Nexford's written consent to exceed the cap — it simply failed to do so.
Scope of the Cap. Cardinal Peak might argue that the 12% cap was intended to apply only to "normal" market fluctuations and that the unprecedented price spikes of 2021–2022 were outside the scope the parties contemplated when negotiating the cap. This argument is essentially an invitation to introduce parol evidence to rewrite a clear and unambiguous contract term. Under the four-corners rule and the parol evidence rule discussed in Section III above, such evidence should be excluded. The cap provision contains no qualifier limiting its application to "normal" market conditions; it applies to all aggregate monthly surcharges, without exception, unless the buyer provides prior written consent.
D. Interplay Between Cap and Written Consent Requirement
It is worth noting that the written consent requirement in Section 7.4(c) functions as a separate and independent condition. Even if Cardinal Peak could somehow persuade the court that the 12% cap threshold was unreasonable as applied to the 2021–2022 market conditions — which we believe it cannot — Cardinal Peak would still face the independent obstacle that it never sought Nexford's written consent to exceed the cap. The failure to seek consent is a separate act of non-compliance with the contractual requirements. Cardinal Peak cannot invoke the reasonableness (or unreasonableness) of the cap as an excuse for not seeking consent; to the contrary, the existence of the consent mechanism demonstrates that the parties contemplated a process for addressing situations where the cap might be insufficient. Cardinal Peak's failure to engage that process cannot be excused.
VII. Exhibit C Surcharge Methodology — Enforceability of the Specified Calculation Approach
A. Contractual Obligation to Use Published Indices
As described in Section II.B above, Exhibit C to the MSA sets forth a detailed and specific Surcharge Methodology that Cardinal Peak is required to follow when calculating surcharges. The methodology mandates use of two published, third-party indices:
(i) The Ferrous Scrap Index, as reported by Platts (S&P Global Platts, formerly Steel Price Index/SPI), a widely recognized and authoritative source for ferrous scrap pricing data in the North American steel industry; and
(ii) The Industrial Energy Cost Index, a published measure of energy costs applicable to industrial operations.
The methodology further prescribes agreed baseline values against which the published index values are compared:
• Scrap cost baseline: $340 per ton
• Energy cost baseline: $48 per ton
Under the Exhibit C methodology, the surcharge for each component (scrap and energy) is calculated as the positive difference, if any, between the actual published index value for the applicable period and the agreed baseline value. This per-ton surcharge is then multiplied by the tonnage delivered during the applicable period to determine the aggregate surcharge amount for each component. The total monthly surcharge is the sum of the scrap surcharge and the energy surcharge (plus any applicable alloy surcharge, calculated separately).
The selection of published, third-party indices as the basis for surcharge calculations was a deliberate and purposeful choice by the parties. The use of published indices provides several critical advantages: (i) objectivity — the indices are published by independent third parties and are not subject to manipulation by either party; (ii) verifiability — both parties can independently access the published index values and confirm the accuracy of the calculations; (iii) standardization — the methodology produces consistent, predictable results based on publicly available data; and (iv) avoidance of cost accounting disputes — the parties need not disclose, audit, or dispute each other's internal cost data.
B. Cardinal Peak's Deviation — "Blended Cost" Methodology
Contrary to the requirements of Exhibit C, Cardinal Peak used an internal "blended cost" metric for surcharge calculations during significant portions of the disputed period. Rather than referencing the Ferrous Scrap Index and the Industrial Energy Cost Index as specified in Exhibit C, Cardinal Peak averaged its actual procurement costs across multiple raw-material sources — including scrap purchased from various suppliers at varying prices, energy costs at multiple facilities, and other internal cost allocations — to arrive at a blended per-ton cost figure. The surcharge was then calculated as the difference between this blended cost figure and the Exhibit C baselines.
This deviation from the contractually specified methodology is significant for several reasons. First, it introduces a subjective, unverifiable element into the surcharge calculation. Nexford has no ability to independently confirm the accuracy of Cardinal Peak's internal procurement costs without conducting a detailed audit of Cardinal Peak's purchasing records, supplier invoices, and cost allocation methodologies — an exercise not contemplated by the MSA and one that would undermine the parties' purposeful choice of a standardized, index-based methodology.
Second, the blended cost methodology systematically produced higher surcharge figures than the Exhibit C methodology would have yielded for the same periods. Based on a preliminary analysis, the excess charges attributable to the blended cost methodology total approximately $1.47 million across the disputed period. This differential arises because Cardinal Peak's actual blended procurement costs, which include range procurement inefficiencies, premium purchases, and cost allocations, exceeded the published index values that the parties agreed would serve as the benchmark. The published indices reflect market-wide conditions; Cardinal Peak's internal costs reflect its own particular procurement practices and supplier relationships.
Third, the deviation from Exhibit C was unilateral. There is no evidence that Cardinal Peak sought or obtained Nexford's consent to depart from the Exhibit C methodology. Nor is there any amendment, addendum, or side letter modifying Exhibit C. Cardinal Peak simply substituted its own internal metric for the contractually specified published indices, without notice to or agreement from Nexford.
Under Illinois law, where a contract specifies a particular methodology for calculating a price adjustment, the specified methodology must be followed. A party may not unilaterally substitute its own methodology, no matter how reasonable or reflective of actual costs the substitute methodology may be. See Canteen Corp. v. Republic of Tex. Props., Inc., 135 Ill. App. 3d 425, 431 (1st Dist. 1985) (holding that where the contract prescribed a specific method for calculating a price adjustment, the seller's use of an alternative method was a breach); Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill. 2d 306, 317 (1987) (enforcing an agreed-upon formula as the exclusive basis for price determination).
C. UCC and Illinois Law on Agreed Price-Determination Mechanisms
UCC § 2-305(1) provides that where "the parties have agreed" on a means of determining the price, that means controls. 810 ILCS 5/2-305(1). The Official Comments to Section 2-305 reinforce this principle, explaining that where the parties have agreed to a specific price-determination mechanism, the mechanism is binding and a court should not substitute its own assessment of what price would be reasonable. See also 810 ILCS 5/2-305 Official Comment 4 ("Where the price is to be fixed otherwise than by the parties, this section recognizes that the agreed upon third party's failure to fix the price does not prevent the parties from having a contract . . .").
Illinois courts have consistently applied this principle to enforce agreed-upon pricing formulas in commercial contracts, even when the formula produces results that one party later views as unfavorable. See Empire Gas Corp., 840 F.2d at 1340 (enforcing pricing formula under Illinois UCC); In re Wes-Teck, Inc., 163 B.R. 596, 602 (Bankr. N.D. Ill. 1994) (holding that where parties agreed on a specific pricing methodology, neither party could unilaterally deviate from it). The rationale is straightforward: the pricing formula represents the parties' bargained-for allocation of risk. By agreeing to use published indices rather than actual costs, the parties assumed the risk that the indices might not perfectly track either party's actual costs in any given period. This was a known trade-off, accepted in exchange for the objectivity, verifiability, and simplicity of the index-based approach.
Even if Cardinal Peak's blended cost methodology produced a result that more accurately reflected its actual procurement costs, this fact is irrelevant under the MSA. The contract does not entitle Cardinal Peak to pass through its actual costs; it entitles Cardinal Peak to pass through surcharges calculated in accordance with Exhibit C. The parties bargained for a standardized, verifiable methodology based on published indices precisely to avoid the disputes, subjectivity, and administrative burden associated with cost-plus pricing. Cardinal Peak may not now unilaterally abandon the bargained-for methodology simply because the published indices yield a lower surcharge than its internal cost data would support.
D. Remedy for Methodology Deviation
Nexford's remedy for Cardinal Peak's deviation from the Exhibit C methodology is to reject the non-compliant surcharge calculations and demand recalculation in strict accordance with Exhibit C. For each month during the disputed period in which Cardinal Peak used the blended cost methodology, the surcharge must be recalculated using the actual published Ferrous Scrap Index and Industrial Energy Cost Index values for the applicable period, applied against the agreed baselines of $340 per ton (scrap) and $48 per ton (energy), and multiplied by the actual tonnage delivered.
To support this position, Nexford has retained Dr. Anita Rosenthal of Meridian Bridge Consulting LLC (engagement effective December 12, 2022) to perform a comprehensive recalculation of the surcharges using the correct Exhibit C methodology. Dr. Rosenthal's analysis will constitute the quantitative foundation of Nexford's rebuttal expert report, addressing Dr. Voss's preliminary damages estimate of $5.11 million. We anticipate that Dr. Rosenthal's recalculation will demonstrate that the surcharges properly owed under the Exhibit C methodology, adjusted for the condition precedent and cap exceedance defenses discussed elsewhere in this memorandum, total no more than approximately $1.89 million — $0.21 million more than the $1.68 million Nexford has already paid.
VIII. Account Stated Claim — Brief Analysis
Cardinal Peak's third cause of action is for account stated. Under Illinois law, an account stated is defined as "an agreement between parties who have had previous transactions of a monetary character that all the items of the account are true, that the balance struck is correct, and that the debtor promises to pay such balance." Dreyer Med. Clinic, S.C. v. Corral, 227 Ill. App. 3d 221, 229 (2d Dist. 1992); Barille v. Sears Roebuck & Co., 289 Ill. App. 3d 171, 175 (2d Dist. 1997).
To establish an account stated, the plaintiff must prove three elements: (1) a previous course of dealing between the parties; (2) an agreement, express or implied, between the parties as to the correctness of the balance stated; and (3) a promise, express or implied, by the debtor to pay the balance stated. Dreyer Med. Clinic, 227 Ill. App. 3d at 229; Lockwood v. Dillman, 86 Ill. App. 3d 1007, 1009 (3d Dist. 1980).
The second element — agreement on the balance — is fatal to Cardinal Peak's account stated claim. An account stated requires that the debtor has acquiesced in or agreed to the correctness of the stated balance. Barille, 289 Ill. App. 3d at 175. Where the debtor has disputed the invoiced amounts, no account stated can arise. See Estate of Suster v. City of Chicago, 2012 IL App (1st) 110388, ¶ 36 (holding that dispute over