Coughlin v. Gustafson

Case Date: 06/21/2002
Court: 1st District Appellate
Docket No: 1-99-1691 Rel

SIXTH DIVISION

June 21, 2002






No. 1-99-1691

 

WILLIAM C. COUGHLIN AND ) Appeal from the
PAMELA COUGHLIN, ) Circuit Court of
) Cook County.
     Plaintiffs-Appellants, )
)
v. ) No. 97 L 6519
)
NUALA GUSTAFSON, ) The Honorable
) David G. Lichtenstein,
     Defendant-Appellee. ) Presiding Judge.

 

JUSTICE BUCKLEY delivered the opinion of the court:

This appeal arises from summary judgment entered in favor ofdefendant Nuala Gustafson and against plaintiffs William Coughlinand Pamela Coughlin on plaintiffs' four-count complaint whichalleged breach of a real estate sales contract, violation of theResidential Real Property Disclosure Act (the Disclosure Act) (765ILCS 77/1 et seq. (West 1998)), negligence in the removal of fuel oiltanks and cleaning of contaminated areas, and breach of impliedwarranties of habitability. Plaintiffs concede that summary judg-ment was proper as to count IV; therefore, we address only thepropriety of summary judgment on counts I through III. The issueson appeal are: (1) whether the merger doctrine bars plaintiffs'breach of contract action; (2) whether the merger doctrine barsplaintiffs' action under the Disclosure Act; (3) whether there aregenuine issues of material fact which preclude summary judgment onplaintiffs' action under the Disclosure Act; and (4) whether thereare genuine issues of material fact which preclude summary judgmentas to defendant's alleged negligence. For the reasons that follow,we reverse and remand for further proceedings.

I. Background

On February 27, 1996, plaintiffs entered into a real estatesales contract with defendant to purchase defendant's home locatedat 129 South Old Creek Road, Palos Park, Illinois.

The contract contained, inter alia, a home inspection rider, whichgave plaintiffs the right to have the property inspected by acertified home inspection service of their choice. The rider pro-vided:

"If said condition report reveals any struc-tual mechanical, and electrical defect(s) forwhich the cost of correcting any saiddefect(s) shall exceed $1,000.00, the Sellershall have the following options, to wit: (A)effecting the necessary correction of saiddefect(s), (B) negotiating the cost ofcorrecting said defect(s) with Buyer or (C)declaring this agreement null and void.

In the event Seller does not exercise anyof these options and, in the further event,that the Buyer does not waive said defect[s],the Buyer shall have the right to declare thisagreement null and void. Should either partyto this agreement make such a declaration, anydeposit made by the Buyer shall be refunded infull."

Also, attached to the contract was a rider entitled, "Rider #5,Seller's Representations," which provided:

"The Seller represents to the Buyer that allmechanical equipment, heating and coolingequipment, water heaters and softeners, sep-tic, plumbing, electrical systems, kitchenequipment remaining with the premises, and anymiscellaneous mechanical personal property tobe transferred to the Buyer shall be inoperating condition at the time of closing. In the absence of written notice of anydeficiency from the Buyer prior to closing, itshall be concluded that the condition of theabove equipment is satisfactory to the Buyerand the Seller shall have no further responsi-bility with reference thereto."

The language below the signature line on rider No. 5 states"Certification that roof and foundation are waterproof." The lastparagraph on rider No. 5 provides: "Seller will provide writtenverification from the appropriate governmental authority that thetanks [oil] remaining in crawl space are not in violation of anyordinance or statute."

The contract also provides:

"Seller, at his expense, prior to closing,shall obtain and deliver to Buyer a water testperformed or acceptable to the county in whichthe property is located, and a septic systemtest indicating that the system is in properoperating condition and in compliance withapplicable state, county and local statutes. Such tests shall be performed not more than 60days prior to the closing date.

If either of said written test reportsindicate that the water is not potable, thatthe septic system is not in proper operatingcondition, or that the systems are not incompliance with the relevant statutes, Sellershall have the option to make the necessaryrepairs and bring the system[s] into compli-ance prior to the closing date. In the eventSeller elects not to make the necessaryrepairs, then this Contract, at the option ofBuyer, shall become null and void, and allearnest money shall be refunded to Buyer."

On March 10, 1996, a representative of HouseMaster of America,a home inspection service retained by plaintiffs, inspected theproperty. The report issued to plaintiffs included the followingobservations of the crawl space: "(2) oil, (2) water tanks notedin crawl. Heavy smell of oil. (Saturated with oil) on floor. Recommend evaluation by Health Department." Plaintiff WilliamCoughlin attended the inspection and, on March 11, 1996, wrote aletter to defendant's attorney stating that he had personally beenin the basement, had seen the oil residue, and had smelled thepetroleum odor. Plaintiffs requested that defendant remove thefuel tanks and have any contaminated areas cleaned professionallyprior to purchase. Plaintiffs gave defendant the name of E.R.I.General Contracting to perform the job and defendant subsequentlyengaged their services.

On May 23, 1996, Carl's Septic Service, Inc., inspected theseptic system and issued a report finding, "[s]eptic field linesare leaking at ends." The parties agreed that defendant wouldplace $1,000 of the proceeds of the sale in an escrow account toensure the repair of the septic system. In a letter dated June 3,1996, Carl's Septic Service, Inc., informed plaintiff WilliamCoughlin that the cost of repairing the septic system would rangefrom $8,000 to $9,000.

With regard to the roof, defendant stated at her depositionthat she contacted a roofer to obtain certification that the roofwas waterproof but he could not come out before the closing. Shestated that she informed plaintiffs of this fact. She furtherstated that she did not agree to furnish certification afterclosing.

The closing took place on June 3, 1996. The record containsno evidence that plaintiffs gave written notice to defendant of anyremaining deficiency. There is no evidence that plaintiffsexercised their right to declare the contract null and void,refused to go through with the closing, or objected to the closingin any way.

On June 2, 1997, plaintiffs filed a four-count complaintagainst defendant and E.R.I. General Contracting. Count I of thecomplaint alleged that defendant breached the terms of the writtenreal estate contract by failing to provide certification that theroof and foundation were waterproof and that the septic system wasin operating condition. Count II alleged that defendant failed todisclose material defects in the septic system, roof, and founda-tion in violation of the Disclosure Act (765 ILCS 77/1 et seq. (West1998)). Count III alleged that defendant was negligent in herremoval of the underground oil tanks and in cleaning the areascontaminated by fuel oil. Count IV alleged that defendant wasguilty of violation of implied warranties of habitability. OnJanuary 12, 1999, defendant filed a motion for summary judgment asto all counts. On April 1, 1999, the trial court granted plain-tiffs' oral motion to nonsuit E.R.I. General Contracting and, inaddition, granted defendant's motion for summary judgment. As tocounts I and II of the complaint, the trial court found as follows:

"Plaintiff[s'] contract claim [count I] and'statutory claim' [count II] must fail becauseon the face of this record it is clear thatthe terms of the written contract were met. Plaintiffs accepted an escrow fund and electedto close when they were not obligated to doso, with full knowledge of the state ofaffairs at the subject property. Indeed, evennow plaintiffs have not sought recoveryagainst the escrow fund. On this record it isclear that the contract has merged into thedeed exchanged for good and valuable conside-ration."

As to count III, the trial court found:

"Plaintiffs' 'negligence' claim [count III] issomewhat obscure. Plaintiffs seek reliefagainst both [defendant] and E.R.I. GeneralContracting for asserted negligence in remov-ing oil tanks from the property. The recordmakes clear however, that [defendant's] dutiesto plaintiffs in this regarded [sic], if any,were contoured by the written contract betweenthe parties. E.R.I. General Contracting owedduties in this regard not to plaintiffs, butto defendant."

Plaintiffs now appeal as to counts I through III.

II. Discussion

A. Standard of Review

Summary judgment is proper only when the pleadings, togetherwith any depositions, admissions, or affidavits on file demonstratethat there is no genuine issue of material fact and that the movingparty is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 1998)); Outboard Marine Corp. v. Liberty MutualInsurance Co., 154 Ill. 2d 90 (1992). Summary judgment is adrastic measure and should only be granted if the movant's right tojudgment is clear and free from doubt. Purtill v. Hess, 111 Ill.2d 229, 240 (1986). The standard of review on appeal from a grantof summary judgment is de novo. See Outboard Marine Corp., 154 Ill.2d at 102.

B. Breach of Contract

Plaintiffs first contend that the trial court erred ingranting summary judgment on count I of their complaint becausedefendant breached the written real estate contract by failing toprovide certifications that the roof and foundation are waterproofand that the septic system is in proper operating condition. Wefind that the trial court erred in holding that the merger doctrinebars plaintiffs' breach of contract claim.

The doctrine of merger provides that in the absence of anexpress clause in a contract, all agreements between a buyer and aseller of real estate merge into the deed when it is delivered tothe buyer at closing. See Ollivier v. Alden, 262 Ill. App. 3d 190,195 (1994). Although the doctrine is not favored by modern courts,it has not been rejected by Illinois courts. See Krajcir v. Egidi,305 Ill. App. 3d 613, 623 (1999). Nevertheless, it is not withoutits exceptions. Our supreme court explained in Petersen v.Hubschman Construction Co., 76 Ill. 2d 31, 39 (1979):

"In Illinois, however, certain exceptions tothe merger doctrine have been created. Rea-soning that the merger doctrine evolved solelyto protect the security of land titles, theIllinois courts have held that when the deedembraced and contained all of the subjects ofthe executory contract, the contract mergedwith the deed. However, an executory agree-ment for the performance of separate anddistinct provisions did not merge with thedeed. The prior contract is superseded onlyas to such of its provisions as are covered bythe conveyance made pursuant to its terms." Petersen, 76 Ill. 2d at 39.

Because executory agreements for the performance of separate anddistinct contract provisions are not fulfilled by delivery of thedeed, it is not merged into the deed and remains open for perfor-mance. See Krajcir, 305 Ill. App. 3d at 623. These separate anddistinct provisions have been described as "collateral to andindependent of the provisions in the subsequent deed." HarrisTrust & Savings Bank v. Chicago Title & Trust Co., 84 Ill. App. 3d280, 284 (1980).

Recently, this court, in Neppl v. Murphy, 316 Ill. App. 3d 581(2000), addressed the applicability of the merger doctrine torepresentations in a real estate contract warranting that theheating system would be in operating condition at the time ofclosing. The trial court granted defendant-seller's motion todismiss plaintiff-buyer's breach of a sales contract action basedon the merger doctrine. Plaintiff-buyer appealed. On appeal, thiscourt recognized that the threshold issue in determining whetherthe merger doctrine applies in a given case is "whether thecontractual provision at issue is collateral to and independent ofthe provisions in the subsequent deed." Neppl, 316 Ill. App. 3d at587. The provision at issue in Neppl read:

"Seller warrants to Buyer that all fixtures,systems and personal property included in thisContract shall be in operating condition atpossession ***." Neppl, 316 Ill. App. 3d at582.

This court, relying on Lanterman v. Edwards, 294 Ill. App. 3d 350(1998), held that this provision was an express warranty of thequality of the heating system and, as such, did not merge into thedeed. Neppl, 316 Ill. App. 3d at 589. The Neppl court recognized:

"Generally, warranties as to quality, incomparison with requirements of conveyancing,touch upon aspects other than the conveyanceitself and are incidental to the main purposeof the deed, which is to transfer good title." Neppl, 316 Ill. App. 3d at 587, citingLanterman, 294 Ill. App. 3d at 353.

Thus, because delivery of the deed would not constitute performanceof the provision, the court determined it was incidental to themain purpose of the contract, i.e., conveyance of real estate, andthe doctrine of merger did not apply. Neppl, 316 Ill. App. 3d at589.

Applying Neppl to the facts in the instant case leads to theconclusion that defendant's warranties as to the condition of theroof, foundation and septic system were collateral to the deliveryof the deed and, thus, not affected by merger.

In addition, courts have also noted that whether and to whatextent the sales contract merges into the deed upon delivery to thebuyer is also a matter of the parties' intent. See, e.g., Danielsv. Anderson, 162 Ill. 2d 47 (1994). This intent is evidenced bythe language of the instruments and the surrounding circumstances. Trapp v. Gordon, 366 Ill. 102, 111 (1937). Here, there is evidencethe parties anticipated their agreements would survive the closing. For example, at the closing, the defendant agreed to place $1,000in escrow as a sign of good faith to repair or replace the septictanks. Certainly such an agreement made at closing presupposesthat it necessarily must survive past the time of closing.

Accordingly, we hold that the merger doctrine does not barplaintiffs' breach of contract action. We also find that becausethere are genuine issues of fact concerning the extent of thesewarranties and obligations and whether the contract was breached,summary judgment was improperly granted as to count I.

C. Failure to Disclose Material Defects

Plaintiffs next contend that the trial court erred in grantingsummary judgment on count II. Plaintiffs assert that the mergerdoctrine is inapplicable to causes of action brought under theDisclosure Act and, in addition, that there are genuine issues ofmaterial fact which preclude summary judgment.

The purpose of the Disclosure Act is to provide prospectivebuyers with information about material defects known to the sellerconcerning the property. See 765 ILCS 77/25, 35 (West 1998). Under the Disclosure Act, the seller is required to complete anddeliver the disclosure report to the prospective buyer before thesigning of a written agreement that would require the buyer toaccept a transfer of the property. See 765 ILCS 77/20 (West 1998). Section 55 provides that "[a] person who knowingly violates orfails to perform any duty prescribed by any provision of this Actor who discloses any information on the Residential Real PropertyDisclo-sure Report that he knows to be false shall be liable in theamount of actual damages and court costs, and the court may awardreason-able attorney fees incurred by the prevailing party." 765ILCS 77/55 (West 1998). Section 25 provides, however, that theseller is not liable for any error, inaccuracy or omission madewithout the seller's knowledge, or where the error, inaccuracy oromission "was based on a reasonable belief that a material defector other matter not disclosed had been corrected." 765 ILCS77/25(a)(West 1998).

We first address plaintiffs' contention that the mergerdoctrine does not apply to violations of the Disclosure Act. Thetrial court's reasoning behind its grant of summary judgment todefendant on this count is not apparent from the face of the order. The court simply stated as to both count I (breach of contract) andcount II (violation of Disclosure Act) that "[o]n this record it isclear that the contract has merged into the deed exchanged for goodand valuable consideration." Thus, it appears that the court foundthe merger doctrine barred both counts, including the countalleging violations of the Disclosure Act. This court's research,however, has not turned up a case which applied the merger doctrineas a bar to a claim under the Disclosure Act. Moreover, the lan-guage of the Disclosure Act itself does not support such aconclusion. Section 60 of the Disclosure Act provides: "No actionfor violation of this Act may be commenced later than one year fromthe earlier of the date of possession, date of occupancy, or dateof recording of an instrument of conveyance of the residential realproperty." 765 ILCS 77/60 (West 1998). Application of thedoctrine of merger would operate as a bar to all actions broughtunder the Disclosure Act after the conveyance of the property. Such a result is certainly inconsistent with the express languageof section 60 of the Disclosure Act. Accordingly, we find thatmerger is not a bar to actions under the Disclosure Act.

Having disposed of the issue of merger, we now address whetherthere are genuine issues of material fact that preclude summaryjudgment on count II of the complaint, which alleges that defendantviolated the Disclosure Act by failing to disclose material defectsin the basement foundation, the septic system, and the roof.

In the case at bar, disclosure number four on the report givenby defendant to plaintiffs reads: "I am aware of material defectsin the basement or foundation." Defendant placed a check mark inthe "no" column next to that statement. Disclosure number fivereads: "I am aware of leaks or material defects in the roof,ceilings or chimney." Defendant placed a check mark in the "no"column next to that statement. Disclosure number 13 reads: "I amaware of material defects in the septic, sanitary sewer or otherdisposal systems." Again, defendant placed a check mark in the nocolumn next to that statement. Finally, disclosure number 20reads: "I am aware of underground fuel storage tanks on theproperty." Defendant placed a check mark in the "yes" column nextto that statement and added the following: "fuel tanks are beingdrained and chemically cleaned out and floor underneath tanks to bechemically cleaned."

Plaintiffs contend that defendant knowingly violated theDisclosure Act because at her deposition she acknowledged that shewas aware of septic defects, yet she failed to disclose them on theform. In a addition, plaintiffs argue that it is a question offact as to whether defendant was aware of defects in the roof andfoundation and failed to disclose them.

In her motion for summary judgment, defendant made no specificargument directed at her alleged violation of the Disclosure Act. Instead, she argued merger and also that plaintiffs had actualnotice of all the material defects. As already stated, merger doesnot bar plaintiffs' action under the Disclosure Act. As to theissue of plaintiffs' alleged actual notice, we find that it doesnot support a finding of summary judgment in defendant's favor.

The case of Woods v. Pence, 303 Ill. App. 3d 573 (1999), isinstructive on the issues before us. In Woods, plaintiff-buyersfiled a complaint against defendant-sellers alleging that sellersviolated the Disclosure Act by falsely representing that they werenot aware of any leaks or material defects in the roof. Woods, 303Ill. App. 3d at 576. The trial court granted summary judgment infavor of defendant-sellers. On appeal, the Third Districtreversed. The court found that summary judgment was improperbecause there were questions of fact as to whether sellers knewtheir statement was false. Woods, 303 Ill. App. 3d at 576; seealso Connor v. Merrill Lynch Realty, Inc., 220 Ill. App. 3d 522(1991) (whether defendant's statement regarding flooding ofbasement was knowingly false was question of fact). In addition,the court found that it was a question of fact whether defendant'sgood-faith belief that the defect had been corrected wasreasonable. Woods, 303 Ill. App. 3d at 577; see also Robinson v.Econ-O-Corporation, Inc., 62 Ill. App. 3d 958 (1978) (reasonablebelief is a question of fact). Here, there are many questions offact remaining. There are questions as to the existence ofdefects, defendant's alleged knowledge of defects, and any good-faith belief that defendant may have had regarding whether thealleged defects had been corrected. Accordingly, we find thatsummary judgment is not appropriate.

Moreover, we reject defendant's inference that plaintiffs'actual notice of any alleged problems is a bar to their cause ofaction under the Disclosure Act. In Woods, the court specificallynoted as follows in response to sellers' assertion in that casethat buyers had notice of water damage to the residence:

"[T]he fact that plaintiffs were aware ofwater damage to the residence does not pre-clude liability. While the disclosure reportis not a substitute for inspections or warran-ties, buyers are entitled to rely on thetruthfulness of the statements containedtherein. [Citation.] A seller who knowinglymakes a false statement is subject to liabil-ity under the Act; no exception is madebecause of a buyer's knowledge of the defect. [Citation.] We believe, however, that abuyer's knowledge of a defect may be relevantto the amount of damages awarded to asuccessful plaintiff. Section 55 [of the Dis-closure Act] provides for an award of actualdamages. [Citation.] Presumably, any defectof which the buyer was aware would bereflected, to a greater or lesser extent, inthe purchase price of the house, therebyreducing those damages." (Emphasis added.) Woods, 303 Ill. App. 3d at 577.

Therefore, although the fact that plaintiffs herein conducted aninspection and were aware of at least the defects in the septicsystem, it is of no consequence to the viability of the cause ofaction.

Accordingly, we find that summary judgment on count II shouldbe reversed.

D. Negligence

Finally, plaintiffs contend that the trial court improperlygranted summary judgment on their negligence claim.

Plaintiffs allege in count III of their complaint that afterinspecting the premises, they notified defendant that the under-ground fuel tanks would have to be removed and the contaminatedareas cleaned. According to the complaint, defendant agreed to doso. Also according to the complaint, defendant and E.R.I. GeneralContracting undertook to remove the tanks and clean the floor andthat both did so negligently.

In her motion for summary judgment, defendant alleged she wasnever involved in the removal of oil tanks from the premises. However, this is contradicted by her response to the followingallegation contained in response to plaintiffs' request to admit:

"Prior to the sale of the improved propertylocated at 129 South Old Creek Road, PalosPark, Illinois, to Plaintiffs, DefendantGustafson personally participated in the cleanup of oil from the floor of the crawl space."

Defendant admitted the allegation. Accordingly, we find that thereare genuine issues of fact on plaintiffs' negligence action whichpreclude summary judgment.


III. Conclusion

Based on the foregoing, we hereby reverse the trial court'sgrant of summary judgment as to counts I, II, and III. The case isremanded for further proceedings.

Reversed and remanded.

Gallagher, P.J., and Campbell, P.J., concur.