Find Legal Information

THIRD DIVISION
Date Filed: March 10, 2004

The plaintiff, International Capital Corporation (ICC),filed a complaint against the defendants, Marcus and MillichapReal Estate Investment Brokerage Company of Chicago (M&M) andGreg A. Moyer, seeking damages resulting from the defendants'disbursement of escrowed funds.

Following a bench trial, the circuit court of Cook Countyentered judgment in favor of ICC and awarded damages in theamount of $43,105.32 against M & M only.⁽¹⁾

M & M raises the following issues on appeal: whether therewas sufficient evidence that M & M breached its fiduciary duty toICC and whether ICC was entitled to the full amount of the escrowas damages for M & M's alleged breach of fiduciary duty.

The pertinent testimony from the bench trial in this case issummarized below.

Robert W. Forloine testified as follows.

Mr. Forloine is the owner of ICC. ICC is in the business ofbuying and managing apartments.

On April 27, 1998, Mr. Forloine entered into a contract topurchase a 128-unit apartment complex in Madison, Wisconsin, fromPark I. Butch and R. Adam Sarauskas (the sellers). Mr. Forloinedeposited $25,000 as earnest money. Scott Harris, the M & Mbroker who showed him the property, suggested that M & M act asescrowee of the earnest money. The closing on the property wasto take place in mid-July 1998.

In a letter dated August 17, 1998, to Mr. Harris, Mr.Forloine requested an extension of the closing date andauthorized an additional $10,000 to be added to the escrowedearnest money fund. There were no discussions regarding M & M's representation of ICC, and Mr. Forloine was not aware of anyagreement that M & M had with the sellers.

In a letter to M & M dated October 16, 1998, Mr. Forloinerequested another extension. He agreed to place another $5,000in the earnest money escrow. The letter did not authorize thedisbursement of the additional $5,000 without furthercommunication from M & M. It was also his understanding that thenow $40,000 in escrow could not be disbursed without any furthercommunication from M & M. The October 16, 1998, letter was not aconsent to the distribution of the escrowed funds. It was Mr.Forloine's understanding that the escrowed funds would not bedisbursed until both parties agreed to it or a court ruled thatthe funds could be released.

In a letter dated October 21, 1998, to Mr. Harris, Mr.Forloine enclosed the check for $5,000 for the extension of thecontract, which was to be held for deposit until Mr. Forloinereceived the signed subscription agreement from his investors anda written confirmation by the sellers of the extension of thecontract through December 15, 1998. His October 21, 1998, letterdid not authorize M & M to disburse the escrowed funds withoutfurther communication from Mr. Forloine.

Mr. Forloine was not aware that, in March 1999, the sellersmade a demand on M & M for release of the escrowed funds. Mr.Forloine received a letter, dated April 12, 1999, from GregMoyer, first vice-president of M & M, advising him of a letterfrom the sellers instructing Mr. Moyer to forward the escrowedfunds. Mr. Moyer requested Mr. Forloine's authorization torelease the funds. In a letter dated April 16, 1999, Mr.Forloine responded to Mr. Moyer's April 12, 1999, letter, statingthat he "would like to request that the funds remain in escrow,while our firm completes its work to secure equity funds for theacquisition of The Woodlands."

In May 1999, Mr. Forloine received a call from a prospectivepurchaser for the property. Mr. Forloine contacted Mr. Harrisand was told that M & M had been pressured by the sellers intoreleasing the escrowed funds. Mr. Forloine never receivedwritten notice of default or termination of the contract from thesellers. At a meeting in May 1999, Mr. Moyer told Mr. Forloinethat he had been under pressure to release the funds.

On cross-examination, Mr. Forloine acknowledged Mr. Moyer'sApril 12, 1999, letter, stating that the previous correspondencehad waived all contingencies, that the earnest money deposit wasnonrefundable and that the closing date had long since passed. However, he did not consider the letter to be notification thatthe contract was terminated because Mr. Moyer did not have theauthority to terminate the contract. As of April 12, 1999, Mr.Forloine was still working toward purchasing the property, withthe knowledge of both M & M and the sellers. Even though theextension expired on December 15, 1998, Mr. Forloine expected topurchase the property when he tendered the purchase price, basedupon conversations with Mr. Harris.

Mr. Forloine's December 10, 1998, letter to Mr. Harrisrequested an extension until December 22, 1998. However, thesellers never signed the extension request, and there was noclosing on December 22, 1998. According to Mr. Forloine, M & Minformed him that the sellers still wished to pursue thetransaction with ICC even though there was no formal contract. Mr. Forloine further acknowledged that, in his May 27, 1998,letter to Mr. Harris, he agreed to waive the 30-day period ICChad to do a physical inspection of the property and a review ofall of the books and records, in order to receive an extension ofthe contract. While Mr. Forloine admitted that ICC had accessedthe escrow funds, he explained that it had been done by accident,and once the mistake was discovered, the funds were restored.

Greg Moyer testified as an adverse witness as follows.

According to Mr. Moyer, there was no written escrowagreement. He acknowledged writing the April 12, 1999, letter toMr. Forloine requesting that he authorize the distribution of theescrowed funds. He admitted that he never received a signedauthorization from Mr. Forloine agreeing to the disbursement ofthe escrowed funds. He further admitted receiving Mr. Forloine'sApril 16, 1999, letter in which Mr. Forloine indicated that heobjected to the disbursement of the escrowed funds.

In making the decision to disburse the escrowed funds, Mr.Moyer reviewed the purchase contract and the addenda, whichremoved various contingencies, including the inspection andfinancing contingencies, and increased the earnest money, whichwas to be considered nonrefundable, liquidated damages in theevent of a buyer default. Prior to releasing the funds, Mr.Moyer requested and the sellers signed an indemnificationagreement.

Although Mr. Moyer believed that he had a sufficient basisto distribute the escrowed funds, he requested Mr. Forloine'sconsent as a courtesy; he did not think that Mr. Forloine wouldsign it. He ignored Mr. Forloine's April 16, 1999, letterbecause the extensions of the contract had long since expired andbecause Mr. Forloine had stated that the funds were liquidateddamages and nonrefundable. Mr. Moyer admitted that the word"nonrefundable" did not appear in Mr. Forloine's October 16,1998, letter. However, that letter was one of a series ofletters associated with the contract.

Mr. Moyer did not recall receiving a demand letter from thesellers in September 1998. He obtained the indemnificationagreement from the sellers as a good business practice, althoughhe did not obtain one in every case. Based on Mr. Forloine'sApril 16, 1999, letter, Mr. Moyer was aware that there was adispute between Mr. Forloine and himself, but he did not considerthat it had any merit. Mr. Moyer denied having an obligation asescrowee to further determine what objection Mr. Forloine had tothe release of the escrowed funds. Mr. Moyer did acknowledgethat M & M held the funds for the mutual benefit of the parties. However, he denied having any responsibility to Mr. Forloine indisbursing the funds.

According to Mr. Moyer, there was usually a notice oftermination from a seller. In this case, there was a September3, 1998, notice of termination. Mr. Moyer did not know if thesellers sent a notice of default to Mr. Forloine.

Adam Sarauskas testified as follows.

Mr. Sarauskas was one of the owners of the property that wasthe subject of the contract in this case. Edward Streit had soldthe property to Messrs. Sarauskas and Butch on contract. Mr.Sarauskas had signed the hold-harmless agreement prepared by M &M. It was his understanding that ICC had waived all of thecontingencies, including that of title and financing. Mr.Sarauskas thought that he had provided written notice of thetermination of the contract to Mr. Forloine but acknowledged thatthe negotiations were handled through the broker.

On cross-examination, Mr. Sarauskas testified that he hadnever been notified by anyone representing Mr. Forloine that Mr.Sarauskas was not authorized to sell the property. He waspresent and signed at the closing when the property was finallysold. Mr. Sarauskas was ready, willing and able to deliver titleto the property on December 15, 1998.

At the conclusion of the trial, the court found that thefacts were basically not in dispute: there was $40,000 inescrowed earnest money funds, the sale never closed and the$40,000 was distributed to the sellers without the consent ofICC.

The trial court noted that an escrowee owed a fiduciary dutyto act only in accordance with the terms of the escrow and thatthe oral escrow instructions, to the extent they existed, did notdirect M & M to pay the escrowed funds to the sellers upon thehappening of a particular event. In the absence of specificinstructions, M & M was required to hold the funds for thebenefit of both parties.

The trial court also relied on section 1450.40 of theIllinois Administrative Code (the Code) (68 Ill. Adm. Code