Find Legal Information

FIRST DIVISION
APRIL 26, 2004

The instant suit arises from a chancery action filed by plaintiffs, Thomas F. Schwinder andSusan L. Londay, seeking specific performance of a condominium purchase contract againstdefendants, Austin Bank of Chicago and Marian Baginski. Baginski subsequently filed acounterclaim, seeking possession of the condominium unit and claiming a rental rate of $1,500per month. Following a bench trial, the trial court entered judgment for plaintiffs, grantingspecific performance and returning to plaintiffs a portion of rent they paid to defendant forNovember 2000. On appeal, defendants contend that the trial court abused its discretion ingranting specific performance because the purchase contract granted defendants the exclusiveright to terminate the purchase contract and limited plaintiffs to the exclusive remedy of the returnof their earnest money. Defendants further contend that the subsequent preclosing possessionagreement did not modify either of those provisions. Plaintiffs respond that defendants never hadan unfettered right to terminate the purchase contract due to a mutuality of obligation thatconferred on the purchase contract an implied covenant of good faith and fair dealing. Further,plaintiffs respond that if defendants ever had such a right, the preclosing possession agreementmodified the purchase contract and terminated that right. Therefore, plaintiffs argue that the trialcourt properly granted specific performance of the purchase contract. In the alternative, plaintiffsclaim that even if defendants had an unfettered right to terminate the purchase contract, they wereestopped from doing so due to Baginski's actions and plaintiffs' detrimental reliance thereon. Forthe reasons that follow, we affirm the trial court's ruling.

BACKGROUND

The record and testimony in this case reveal that on June 21, 2000, plaintiffs, Thomas F.Schwinder and Susan L. Londay, tendered an offer to purchase a condominium unit located at3117 South Benson, in Chicago, Illinois, which was owned by defendants, Austin Bank ofChicago, trustee under trust agreement dated February 24, 1978, known as trust No. 5861(hereinafter Trustee), and Marian Baginski. As the sole beneficiary of this land trust, Baginskiwas thus authorized to convey the title to plaintiffs.

On July 5, 2000, Baginski accepted the offer from plaintiffs to purchase the condominiumunit. The purchase contract between the parties was a form real estate contract prepared byBaginski's attorney and utilized for all real estate transactions in the Bridgeport CrossingCondominium complex in which the condominium unit was located. Relevant to this case isparagraph 12 of the purchase contract, which provided as follows:

"12. Termination and Default.

(a) If this Contract is terminated without Purchaser's fault, the earnestmoney shall be returned to Purchaser, but if the termination is caused by thePurchaser's fault, then at the option of the Seller and upon notice to the Purchaser,the earnest money shall be forfeited to the Seller and applied first to the paymentof the Seller's expenses; the balance, if any, to be retained by the Seller asliquidated damages. Return of the Purchaser's funds shall be the Purchaser's soleexclusive remedy in the event of Seller's default. Purchaser acknowledges that thelisting agent is hereby authorized by Purchaser to release the earnest money toseller upon written direction by the Seller that Purchaser's fault has caused atermination of the contract.

(b) A failure to appear at the time and place stated in the notice of theclosing date, a failure to furnish all requested credit information, or a failure toenter into an escrow agreement or to make the deposits required thereunder shallbe a default. If the Purchaser shall fail or refuse to carry out any obligation of thePurchaser contained herein within three (3) days after receipt of written noticethen, at the option of the Seller, the earnest money shall be retained by Seller asliquidated damages, and/or the Seller may elect any other available remedy. In theevent Seller shall fail to be unable to deliver title to the property as herein providedon account of title defects which Purchaser is unwilling to waive and Seller cannotcure or secure insurance over, or if Seller fails or refuses to carry out any materialcovenant or obligation hereunder or if Seller declines to close and notifiesPurchaser, this contract shall be terminated and the earnest money and interestshall be returned to Purchaser. The return of such earnest money shall bePurchaser's sole and only remedy in such instance, the sufficiency of which ishereby acknowledged. Purchaser hereby waives all other remedies, other than areturn of earnest money, which may be otherwise available to Purchaser."

According to the record, attorney approval and other modifications to the purchasecontract were completed on August 1, 2000. Thereafter, closing of the sale and purchase of thecondominium unit was originally scheduled for August 16, 2000. However, by mutual agreementof the parties, the closing was rescheduled for August 31, 2000, at the offices of Stewart Title. The purchase price for the condominium unit was $215,000⁽¹⁾, which included certain "custom⁽²⁾"items of construction.

According to the testimony of Schwinder and Londay, they deposited the earnest moneyand obtained mortgage approval as required by the purchase contract. They further withdrew$10,000 from their 401(k) retirement plan for use as the down payment on the purchase of thecondominium unit. Also, they testified that they were ready willing and able to close the purchaseof the condominium unit on the previously agreed-upon date. However, one day prior to thescheduled closing, plaintiffs were advised that the closing of the condominium purchase contractwould be delayed due to an injunction entered in Baginski's divorce action No. 00 D 6184 (Cir.Ct. Cook County) (hereinafter Baginski divorce action). Because the plaintiffs' lease on theirpervious residence was expiring on August 31, 2000, the plaintiffs needed possession of thecondominium unit pending closing. In order to provide plaintiffs with possession prior toclosing, Baginski's attorney prepared a preclosing possession agreement (hereinafter PCPA). ThePCPA was executed by plaintiffs and Baginski on August 31, 2000. Although the purchasecontract, by its terms, prohibited possession of the condominium unit prior to closing, the PCPAgranted possession of the condominium to plaintiffs until the seller, Baginski, "was able to closeon the sale of the property." The PCPA did not afford Baginski the right to terminate thecontract⁽³⁾ but, on the contrary, granted plaintiffs "the sole option [to] terminate this [PCPA]together with the Condominium Purchase Agreement *** by giving 30 days written notice to theseller" if closing had not occurred "on or prior to November 30, 2000."

Schwinder testified that on August 31, 2000, pursuant to the PCPA, plaintiffs tookpossession of the condominium unit and he and his coplaintiff were to pay a monthly fee of$1,500 for the use and occupancy of the condominium unit. Pursuant to the express terms of thePCPA, the monthly fee of $1,500 was payable only "until such time as Seller is able to close onthe sale of the property." Plaintiffs also testified that after they took possession of thecondominium unit, they purchased and installed a washer and dryer and made other suchimprovements therein.

Schwinder, Londay and Baginski testified that on August 31, 2000, they executed a"Punch List of Items to be Finished at 3117 South Benson" (hereinafter punch list) pursuant tothe terms of the purchase contract. That day, Baginski repaired some of the punch list items. Then in early September, Baginski repaired additional punch list items; however, there are punchlist items that remain unperformed.

On November 8, 2000, Judge Bellows entered an agreed order in the Baginski divorceaction allowing the sale of the condominium unit to proceed. Baginski's real estate attorney,Stephen Witt, was advised of the entry of the agreed order by a letter, in evidence, datedNovember 8, 2000, sent by plaintiffs' attorney. That letter also requested that the plaintiffs beadvised of possible closing dates so that a definitive closing date could be scheduled amongst theparties.

Baginski testified that after receipt of the letter of November 8, 2000, from plaintiffs'attorney, he directed Witt to schedule a closing date. Baginski further testified that he was willingto close the sale of the condominium unit if the terms of the purchase contract were met. However, Schwinder and Loday testified that neither they nor their attorney received a responseto the November 8^th letter. There was no testimony or evidence introduced at trial regardingefforts made to schedule a closing for the sale of the condominium unit or an inability to do so. Likewise, the record is devoid of any facts that would excuse or explain Baginski's refusal toconsummate the sale of the condominium unit.

Schwinder and Londay testified that on December 15, 2000, they sent a certified letter toBaginski requesting that Baginski schedule a closing date for the purchase of the condominiumunit. They obtained acknowledgment that Baginski received the letter, but never received a replythereto. They further testified that the next month, Baginski requested rent payments for themonths November thru January. Plaintiffs paid the rent for November, but plaintiffs refused topay any further rent, claiming that they did not want to be renters; Baginski responded that thematter was in the lawyers' hands.

Plaintiffs testified that they made one final attempt on January 16, 2001, to procure aclosing date by sending Baginski's attorney a letter to that effect. A response from Baginski'sattorney, in evidence, provided that he was no longer representing Baginski, and no closing datewas scheduled in response to the January 16^th letter.

On January 24, 2001, plaintiffs filed a complaint for specific performance againstdefendants. Defendants filed a counterclaim seeking possession of the condominium unit andclaiming unpaid rent after November 2000.

On October 18, 2002, the trial court entered its judgment. The trial court found that thepurchase contract and the PCPA were binding upon the parties. Despite the existence ofparagraph 12 previously discussed, the trial court required specific performance on the part ofBaginski in proceeding with the purchase contact. Further, the trial court denied Baginski'scounterclaim and found that Baginski was not owed rent after November 8, 2000, the date onwhich the agreed order in the divorce action granted Baginski the right to close on thecondominium unit.

On November 18, 2002, defendants filed a motion for reconsideration. That motionrequested a rehearing based on newly discovered evidence not available at the time of the trial andupon errors made by the trial court in application of the law. Specifically, defendants alleged thatthere were liens on the property that would have made it impossible for them to convey good titleto the property. These liens, defendants alleged, were discovered after the close of trial. OnJanuary 27, 2003, the trial court denied defendant's motion for reconsideration.

On February 7, 2003, defendants filed a petition for leave to appeal the decision of thetrial court granting specific performance. This court granted the petition for leave to appealpursuant to Supreme Court Rule 301.

On appeal, defendants contend that the trial court abused its discretion in granting specificperformance of the purchase contact. We affirm.

ANALYSIS

PCPA Modified the Purchase Contract

The controlling issue in this case is whether the plaintiffs had a right to seek specificperformance when the purchase contract limited their remedy to the return of their earnest money. Defendants argue that, pursuant to the purchase contract, they had an unfettered right toterminate the sale of the condominium unit without suffering any loss other than the return ofplaintiffs' earnest money. Moreover, defendants argue that the PCPA did not modify these rights. Plaintiffs respond that their remedy was not restricted by the purchase contract and that the grantof specific performance was proper. Plaintiffs' response is predicated on their claim thatdefendants did not have an unfettered right to terminate the purchase contract and return theearnest money because the PCPA modified the purchase contract, thereby divesting defendants ofthat right. In the alternative, plaintiffs respond that even if defendants had an unfettered right toterminate the purchase contract and return plaintiffs' earnest money, they were estopped fromdoing so due to Baginski's actions and plaintiffs' detrimental reliance thereon. The trial courtagreed with plaintiffs in finding that they were not limited to the return of their earnest money. Inthat regard, the trial court held that the execution of the PCPA modified the purchase contractand thereby superceded any right defendants had to terminate the purchase contract and onlysuffer the return of plaintiffs' earnest money, which would return defendants to their originalposition. Moreover, the trial court found that the purchase contract was valid and enforceableand that the equities in this case warranted specific performance of that contract. We agree withthe plaintiffs' position and the finding of the trial court.

First, we must consider whether the PCPA modified the purchase contract so as to divestdefendants of their right to terminate the purchase contract and return plaintiffs' earnest money. In doing so, we must look to the definition and elements of a modification. A "modification" of acontract is a change in one or more respects which introduces new elements into the details of thecontract, or cancels some of them, but leaves the general purpose and effect undisturbed.Hartwig Transit, Inc.v. Menolascino, 113 Ill. App. 3d 165, 170, 446 N.E.2d 1193, 1195 (1983);International Business Lists, Inc., v. American Telephone & Telegraph Co., 147 F.3d 636, 640(7^th Cir. 1998) (applying Illinois law). Modification of a contract normally occurs when theparties agree to alter a contractual provision or to include additional obligations, while leavingintact the overall nature and obligations of the original agreement. See Hartwig, 113 Ill. App. 3dat 170, 446 N.E.2d at 1195.

Parties to a contract are not locked into its terms forever. Accordingly, parties to anexisting contract may, by mutual assent, modify the purchase contract provided that themodification does not violate law or public policy. 17A Am. Jur. 2d Contracts