Tan v. Boyke

• Decision Date: 06 May 1987
• Docket Number: No. 2-86-0170,2-86-0170
• Parties: , 108 Ill.Dec. 229 Galo L. TAN, Plaintiff-Appellee, v. Bruce C. BOYKE, Defendant-Appellant, and Zion State Bank and Trust Company, as Trustee, Defendant.
• Court: United States Appellate Court of Illinois

Page 390

508 N.E.2d 390

156 Ill.App.3d 49, 108 Ill.Dec. 229

Galo L. TAN, Plaintiff-Appellee, v. Bruce C. BOYKE, Defendant-Appellant and Zion State Bank and Trust Company, as Trustee, Defendant.

No. 2-86-0170.

Appellate Court of Illinois Second District.

May 6, 1987.

Supplemental Opinion on Denial

of Rehearing June 16, 1987.

Ray & Glick, Ltd., Bogdan Martinovich, Libertyville, for defendant-appellant.

Charles M. May, Conzelman, Schultz, Snarski & Mullen, Murray R. Conzelman, Waukegan, for plaintiff-appellee.

Justice UNVERZAGT delivered the opinion of the court:

The plaintiff, Dr. Galo Tan, filed a three-count amended complaint in the circuit court of Lake County arising from a contract between himself and the defendant, Bruce Boyke, by which Boyke had agreed to sell plaintiff two apartment buildings at 905 and 1005 Baldwin Avenue in Waukegan.

The trial court dismissed counts I and III, which are not relevant to this appeal, and the case proceeded to trial solely on count II, which alleged fraudulent misrepresentation. After the trial had concluded, the court permitted the plaintiff to amend his complaint to add count IV, which alleged negligent misrepresentation, and count V, which alleged a violation of the Consumer Fraud and Deceptive Business Practices Act. (Ill.Rev.Stat.1985, ch. 121 1/2, par. 261 et seq.) (hereinafter referred to as the Act). The court concluded that the plaintiff had established all of the elements of both intentional and negligent fraud and awarded him $68,761 as damages. The court expressly concluded that Boyke's testimony was not credible and additionally held that he had violated the Act, but it awarded no additional damages based on count V. The defendant appeals.

The following facts were adduced at the trial. Bruce Boyke constructed the two apartment buildings in 1964 and 1965. Boyke owned and managed the buildings and had owned the subject property prior to their construction. The 905 building contains 35 units and the 1005 building has 31 units. The building permit application for the 1005 building listed the site as lot 5. The application for the 905 Baldwin building listed its site as lot 4 and the south 60 feet of lot 5. Thus both applications included the south 60 feet of lot 5, incorrectly representing that an additional 60 feet of land was available for the two buildings than actually was. Additionally, the construction permit issued for the 905 building permitted construction of only 31 units, although it was actually constructed with 35 units. The result of these discrepancies was a greater density of housing units with less available parking than the applicable zoning ordinances permitted.

Boyke stated that he had only a vague recollection of the fact that both permits included the south 60 feet of lot 5. He explained that it had been his practice to give his building plans to Harry Poe, who was the building commissioner for the city of Waukegan (the city) at the time, and who has since died. Poe would then tell Boyke that he (Poe) would "take care of everything." Boyke explained the discrepancy in the number of units by stating that he had discussed the matter with Poe. According to Boyke, Poe orally approved a change in the 905 building's design to replace some two-bedroom units with efficiencies. Boyke admitted that he knew the written permit allowed construction of only 31 units but stated that he believed Poe's oral approval made all of the units legal. The city never cited Boyke for violations of its zoning or building codes. Boyke did not tell the plaintiff about his dealings with Poe or the discrepancies in the permits although he knew that the plaintiff believed all 66 units to be lawful ones.

On July 5, 1979, Boyke and Tan signed a contract for the sale of the buildings for $1,786,000, and setting the closing date for September 28, 1979. Tan intended to convert the units into condominiums. Tan obtained a loan commitment for $1,450,000 from B.B. Cohen & Co., and retained the law firm of Rudnick & Wolfe (hereinafter referred to as R & W) to represent him in the matter. R & W then attempted to meet all of B.B. Cohen's requirements so that the transaction could be completed. After repeatedly failing to respond to R & W's requests for the plat of survey, the original certificates of occupancy, and original building plans, Boyke finally furnished the plat of survey and informed R & W that he did not have the other documents. R & W went to the city and verified that the property was zoned for multi-family residences and had never been cited for violations of the city's building or zoning codes. It then obtained copies of the certificates of occupancy from the city and noticed that the city had authorized occupancy of only 31 units for the 905 building. On further investigation, R & W located the original applications for building permits and discovered the inclusion in both permits of the south 60 feet of lot 5. It then obtained copies of the city's current zoning ordinance and the ordinance which was in effect at the time the apartments were constructed. Using the square footage contained in the plat of survey, R & W determined that the buildings were in violation of both the prior and the current zoning ordinances. R & W inquired into obtaining a zoning variation and were advised by the city that such a request would probably be refused.

The parties then met to discuss the matter, and Tan suggested a reduction in the purchase price to reflect the fact that he would be unable to use all 66 units. Boyke refused. Tan then refused to complete the deal, and Boyke returned his earnest money. It is undisputed that Tan had already incurred substantial fees for B.B. Cohen's loan commitment, end loan commitments made by several banks, a mortgage broker's services, an appraisal of the property, a marketing analysis, an engineering report B.B. Cohen's attorney fees, and R & W's fees. Boyke denied liability for those costs, and this suit followed.

On appeal, the defendant argues that: (1) the evidence does not support the court's conclusion that he made a fraudulent misrepresentation; (2) the court erred in finding him liable for negligent misrepresentation; (3) the court erred in applying the Act to this transaction; (4) the plaintiff elected to rescind the contract and was therefore barred from bringing an action for damages; and (5) plaintiff's damages were not properly proved.

I.

The following are the elements of an action for fraudulent misrepresentation: (1) a false statement of material fact; (2) by a party who knows or believes it to be false; (3) with the intent to induce another to act; (4) action by another in reliance on the statement's truth; and (5) injury to the other resulting from that reliance. (Soules v. General Motors Corp. (1980), 79 Ill.2d 282, 286, 37 Ill.Dec. 597, 402 N.E.2d 599.) In addition, the injured party must have been justified in relying on the other's statement. (79 Ill.2d 282, 286, 37 Ill.Dec. 597, 402 N.E.2d 599.) An affirmative statement is not always required, however, and fraud may also consist of the omission or concealment of a material fact if accompanied by the intent to deceive under circumstances which create the opportunity and duty to speak. (See, e.g., Wright v. Richards (1986), 144 Ill.App.3d 450, 457, 98 Ill.Dec. 942, 494 N.E.2d 1269; Central States Joint Board v. Continental Assurance Co. (1983), 117 Ill.App.3d 600, 604, 73 Ill.Dec. 107, 453 N.E.2d 932; Perlman v. Time, Inc. (1978), 64 Ill.App.3d 190, 195, 20 Ill.Dec. 831, 380 N.E.2d 1040.) A trial court's finding of fraud will not be disturbed unless it is against the manifest weight of the evidence. (Halla v. Chicago Title & Trust Co. (1952), 412 Ill. 39, 47, 104 N.E.2d 790.) The defendant argues that plaintiff has failed to demonstrate virtually every element of a fraud. We disagree.

In Kinsey v. Scott (1984), 124 Ill.App.3d 329, 79 Ill.Dec. 584, 463 N.E.2d 1359, this court was presented with a situation very similar to the one present here. The defendant in Kinsey sold a five-unit apartment building to the plaintiff, knowing that she intended to use one unit for herself and would rent the remaining four. He did not inform her that the fifth apartment was constructed without a building permit, and that he consulted a building inspector after its completion and was told that it was by then too late to obtain one. (124 Ill.App.3d 329, 333, 79 Ill.Dec. 584, 463 N.E.2d 1359.) The Kinsey court concluded that the defendant's conduct constituted fraud, stating that the "defendant represented the building was a five-unit building, which plaintiff relied on, when in fact it was not lawfully a five-unit building. This was a misrepresentation." (124 Ill.App.3d 329, 336, 79 Ill.Dec. 584, 463 N.E.2d 1359.) The court noted further that "[h]aving represented to plaintiff that he was selling a five-unit apartment building, his concealment of the actual facts surrounding the construction of the basement apartment shows an intention to deceive, and under the circumstances creates a duty to speak." 124 Ill.App.3d 329, 337, 79 Ill.Dec. 584, 463 N.E.2d 1359.

We find the Kinsey decision to be directly on point. Boyke represented to Tan that the two apartment buildings contained a total of 66 units, when in fact at least five of the units were unlawful. This clearly was a misrepresentation. In addition, Boyke knew that Tan intended to use all of the units. The circumstances therefore clearly created a duty to reveal the discrepancies between the square footage and number of units reported on the building permit applications and the actual size of the property and the number of units constructed.

Boyke argues that he relied on Poe's assurances and believed that the buildings were entirely legal. However, the trial court specifically found that Boyke's testimony was not credible, and that he knew the buildings were constructed in violation of the city's zoning...