Jones v. Melrose Park Nat. Bank, B-K

• Decision Date: 10 April 1992
• Docket Number: No. 1-91-0205,No. 1801,B-K,1801,1-91-0205
• Citation: 592 N.E.2d 562,228 Ill.App.3d 249,170 Ill.Dec. 126
• Parties: , 170 Ill.Dec. 126 Robert JONES, d/b/a Advance Steel Company andPartners, Plaintiff-Appellee, v. MELROSE PARK NATIONAL BANK, as Trustee under Trust, and Earl M. Greene, Defendants-Appellants. First District, Sixth Division
• Court: United States Appellate Court of Illinois

Page 562

592 N.E.2d 562

228 Ill.App.3d 249, 170 Ill.Dec. 126

Robert JONES, d/b/a Advance Steel Company and B-K Partners Plaintiff-Appellee, v. MELROSE PARK NATIONAL BANK, as Trustee under Trust No. 1801 and Earl M. Greene, Defendants-Appellants.

No. 1-91-0205.

Appellate Court of Illinois,

First District, Sixth Division.

April 10, 1992.

Robert S. Fritzshall, Fritzshall & Gleason, Chicago, for defendants-appellants.

Melanie Grabavoy, Chicago, for plaintiff-appellee.

Justice McNAMARA delivered the opinion of the court:

Plaintiff, Robert Jones, doing business as Advance Steel Company and B-K Partners, brought suit alleging breach of a real estate contract against defendants, Melrose Park National Bank as trustee, and Earl M. Greene as beneficiary (collectively as "defendant"). Defendant filed a counterclaim against plaintiff seeking damages for past-due rental payments, utilities and damage to the property. Following a bench trial the trial judge found defendant in breach of the agreement, and awarded plaintiff reimbursement of earnest money, improvements to the real and personal property, and moving expenses. The trial court also granted defendant's counterclaim against plaintiff for past-due rent payments and utilities.

Defendant appeals, contending that the trial court erred in concluding that defendant breached the real estate sales contract by failing to provide merchantable title, and that plaintiff should not have been awarded consequential damages. (Defendant does not contest the trial court's judgment ordering the return of plaintiff's earnest money. Additionally, the past-due rent payments and utilities awarded to defendant pursuant to the counterclaim are not at issue in this appeal.)

We adduce the following relevant facts from the record. On November 28, 1984, the parties entered into a written agreement whereby plaintiff, who operated a structural steel fabricating company, agreed to pay $265,000 for certain real estate and industrial property owned by defendant at 2755 West Lake Street, Melrose Park, Illinois. Paragraph 8 of the real estate sales contract provided in relevant part:

"Seller warrants that Seller, its beneficiaries or agents of Seller ... have received no notices from any city, village or other governmental authority of zoning, building, fire or health code violations in respect to the real estate that have not been heretofore corrected."

On September 17, 1984, the United States Environmental Protection Agency ("EPA") filed a complaint and notice of opportunity for hearing against defendant for failure to fully comply with regulations regarding the disposal of polychlorinated biphenyls ("PCB") in a 490 square foot area located on defendant's property.

Plaintiff testified that he met with defendant Greene and a real estate agent in October 1984, and held several discussions concerning the purchase price and occupancy of the property. Plaintiff did not observe dirt being moved or any construction on the premises prior to the time he signed the contract. Defendant did not mention that he had been contacted by the EPA, or that a soil contamination problem existed. There was no agreement to pay any rent at the time plaintiff began occupying a portion of the premises because both parties expected to proceed to closing the sale shortly.

Plaintiff testified that he first discovered soil contamination on the premises in May 1985 after moving into the property. Defendant informed plaintiff that there were transformers on the property leaking PCB, and that the EPA was giving him a hard time. Defendant contracted with an environmental company to perform the clean-up operation, which began in June 1985. The transformer and the capacitors were removed from the premises in September 1985. After that time, defendant repeatedly stated that the resolution of the problem was "imminent."

Karl Irwinski, plaintiff's partner, similarly testified that he first became aware of the soil contamination problem during the first week of May 1985. Irwinski noticed defendant's employees filling 55-gallon drums with dirt. According to Irwinski, defendant denied that any problem existed; however, Sue Semenec, defendant's office manager, informed Irwinski the following day that a transformer on the property was leaking PCB.

In his evidence deposition, defendant Greene stated that he first became aware of the PCB problem in July or August 1984, when the EPA told him that a transformer on the property was leaking. Semenec also testified that in July 1984 the EPA visited the premises and made some general inquiries; however, defendant did not receive any civil complaints until December 1984. Semenec stated that defendant first learned of the specific EPA violation at the end of February or early March 1985, and that defendant advised plaintiff of the soil contamination problem at that time.

The agreement provided that defendant could use all of the warehouse building space for a period of six months after the closing, but that 10,000 square feet of warehouse space would be available to plaintiff prior to closing. Within 90 days of the sale, the parties agreed that defendant would provide plaintiff with one-half of the remaining warehouse space, and the remainder within six months after closing. Defendant also had the option to retain possession of the last 7,500 square feet for 90 days. There was no charge to defendant for the use of this space for nine months after the date of closing.

The sales contract contained a mortgage contingency which provided that purchaser would secure a firm commitment for a conventional loan in the amount of $173,500. In paragraph 5 of the supplemental amendment, plaintiff was also given access to the premises to make any and all necessary improvements, as set forth below:

"[B]eginning January 1, 1985, buyer will have access to the entire premises to make any and all necessary improvements ... In the event the sale is not closed due to Buyer's failure to obtain a mortgage or for any other reason due to Buyer's fault, Buyer will not be entitled to reimbursement for the reasonable value of the expenditures made to said premises.

In the event the sale is not closed due to Seller's fault, Seller will reimburse Buyer for all expenditures made by Buyer in improving said premises after Buyer receives his mortgage commitment; any expenditures made by Buyer prior to the time he receives his mortgage commitment will not be reimbursed regardless of whether the sale is closed due to Seller's fault or Buyer's fault."

Plaintiff received a mortgage commitment from Colonial National Bank on January 18, 1985, in the amount of $200,000 which expired on February 6, 1985. Subsequently, on February 9, 1985, plaintiff received a second commitment from Colonial Bank which extended through February 25, 1985. The original closing date of December 14, 1984 was rescheduled to February 1, 1985 and later to March 8, 1985, pursuant to a contractual rider.

On February 27, 1985, plaintiff obtained a mortgage commitment from Melrose Park National Bank for $200,000, which expired on April 26, 1985. Melrose Park Bank issued another mortgage commitment on November 29, 1985, which extended through January 28, 1986. In that mortgage commitment, a provision was included that the $200,000 loan was contingent upon satisfactory evidence of a complete release from any further action by the EPA due to the PCB problem.

James Addington, vice-president of the loan department of Melrose Park Bank, testified that he had a series of discussions with defendant beginning in late May or early June 1984, wherein defendant told him that his son had installed a transformer on the property which presented some ground contamination problems. After the property had been sold to plaintiff, defendant informed Addington that he had contracted with an engineering firm for removal of the transformer, and that soil borings were going to be performed in Spring 1985 to determine if there was any PCB leakage. At the time, it was the usual and customary practice of the banking industry to demand that the property be cleaned up prior to the time that the closing would take place so that the bank did not acquire a piece of collateral it would not be able to use. Addington never received clearance from the EPA that the contaminated soil had been removed. Aside from the EPA violation, there was no other reason why Addington did not disburse the mortgage loan to defendant.

In June 1985, the parties entered into an oral lease agreement, retroactive to April 1985, which provided that plaintiff would occupy 10,000 square feet of warehouse space, 5,000 square feet of yard space, and 1,500 square feet of office space. (Prior to that time, plaintiff had access to 6,000 square feet of warehouse space only). Plaintiff rented the premises on a month-to-month basis at a rental rate of $3,000 per month plus utilities. Plaintiff paid only the first month's rent, and a certain portion of the utilities.

Plaintiff made numerous improvements to the property, including the installation of electrical lines, gas piping, infrared heating, masonry,and the replacement of approximately 800 to 900 windows in the warehouse facility. Plaintiff stated that in August 1985, defendant allowed him to proceed with the extensive improvements required in the property in lieu of paying rent. From May 1985 through June 1986, plaintiff inquired approximately two or three times a month if the EPA releases were forthcoming, and about the progress of the soil testing.

On May 19, 1986, defendant sent plaintiff a five-day notice to vacate the premises. Plaintiff inquired whether defendant would agree to a long-term lease with an option to buy if defendant could produce an EPA release at some later time. Defendant refused plaintiff's request, and stated that he wanted to sell the building and proceed with the original deal.

The parties agreed that plaintiff had to...