Lobo Iv, LLC v. V Land Chi. Canal, LLC

Decision Date21 March 2019
Docket NumberNos. 1-17-0955,1-17-0957 (cons.),1-17-0956,s. 1-17-0955
Citation138 N.E.3d 824,435 Ill.Dec. 210,2019 IL App (1st) 170955
Parties LOBO IV, LLC ; The Davis Family Trust; and Marc E. Davis, Plaintiffs and Counterdefendants-Appellants and Cross-Appellees, v. V LAND CHICAGO CANAL, LLC; V Land Bloomingdale Army Trail, LLC; V Land Mokena Wolf, LLC; and V Land Corporation, Defendants-Appellees and Cross-Appellants (Lakeside Bank, Intervenor-Defendant and Counterplaintiff-Appellee and Cross-Appellant).
CourtUnited States Appellate Court of Illinois

Jeffrey M. Marks, of Law Offices of Jeffrey Marks, and Bradley P. Nelson, of FisherBroyles LLP, both of Chicago, for appellants.

Mark T. O’Toole, of Foran, O’Toole & Burke LLC, and John H. Scheid Jr. and James J. Sipchen, of Pretzel & Stouffer, Chtrd., both of Chicago, for appellees.

Timothy J. Patenode and Kyle T. Finnegan, of Katten Muchin Rosenman LLP, of Chicago, for intervening defendant-appellee and cross-appellant Lakeside Bank.

JUSTICE GORDON delivered the judgment of the court, with opinion.

¶ 1 The instant consolidated appeals arise from a trial court order granting specific performance on two real estate purchase contracts between plaintiff Lobo IV, LLC (Lobo), and defendants (collectively, V Land), in which, after a bench trial, the trial court found that Lobo was entitled to purchase the properties pursuant to the contracts and was also entitled to monetary damages due to V Land's failure to convey Lobo the properties under the terms of the contracts. However, in subsequent proceedings, the trial court also found that Lakeside Bank (Lakeside), an intervenor and counterplaintiff, had issued several mortgages on the properties that had priority over the purchase contracts and that Lobo's monetary judgment against V Land could be used to abate only the purchase price of the properties owed to V Land and would not abate any of the moneys due on the outstanding mortgages held by Lakeside, which the trial court found that Lobo would be required to pay off. All parties appealed.

¶ 2 Specifically, plaintiffs claim that (1) Lakeside's mortgages did not take priority over the purchase contracts, (2) the trial court should have permitted Lobo to abate any amounts owed to Lakeside to the extent of the judgment award in Lobo's favor, (3) the trial court should have extended the closing date further, (4) plaintiffs were entitled to additional attorney fees and to an updated damages award, and (5) the trial court should have appointed a receiver or escrowed the revenues from the properties at issue. Both V Land and Lakeside argue that Lobo terminated the purchase contracts by not closing on the date set by the trial court, and so plaintiffs' appeal should fail. Additionally, each raises their own issues on appeal. V Land claims that the trial court erred in granting specific performance and monetary damages. Lakeside claims that it was entitled to equitable subrogation on several loans it issued concerning the properties. For the reasons that follow, we affirm in part and reverse in part.


¶ 4 The underlying litigation in the instant case has been lengthy, spanning over 13 years since the purchase contracts at issue were first executed. As noted, the instant case proceeded to a bench trial; on appeal, none of the parties challenges any of the trial court's findings of fact. Accordingly, we set forth the relevant factual background of the case as found by the trial court in its May 24, 2012, memorandum opinion and order following trial.

¶ 5 Plaintiff Lobo is an Illinois limited liability company (LLC), and plaintiffs the Davis Family Trust and Marc Davis are the members of Lobo. Lobo owned several parcels of land in Mokena, Illinois, and in June 2005, sold two of the Mokena properties to defendant V Land Mokena Wolf, an LLC owned and managed by Steve Panko, a real estate developer; as part of the same transaction, V Land agreed to sell to Lobo, at a later date, three other properties owned by other V Land entities in Chicago, Bloomingdale, and Streamwood.1 The transaction was structured so that Lobo could take advantage of the tax-deferral provisions of § 1031 of the Internal Revenue Code ( 26 U.S.C. § 1031 (2000) ) by utilizing the proceeds of the sale of its Mokena properties to purchase V Land's "exchange" properties. However, Lobo's purchase of V Land's properties never closed.

¶ 6 The properties at issue were owned by defendants V Land Chicago Canal, LLC, and V Land Bloomingdale Army Trail, LLC, and both properties were under construction at the time the parties entered into their agreements: the Chicago store (referred to as the Canal property due to its location) was under construction for a Staples office supply store and a Chase Bank branch, and the Bloomingdale store was under construction for another Staples store. The purchase contracts for both properties were identical in all material respects other than their price terms: the purchase price for the Canal property was $ 9.5 million and the purchase price for the Bloomingdale property was $ 4.2 million. Several provisions of the purchase contracts are central to the issues on appeal, and we quote them where appropriate in our recitation of the facts and our analysis.2

¶ 7 First, paragraph 3 of the contracts contained a provision permitting an adjustment in the purchase price if an appraisal returned a different valuation for the property; according to the trial court's findings, this provision was included because the parties could not agree on a price, and Panko, owner of V Land, believed that the provision would work in his favor because he predicted that the appraisals would return higher valuations than the purchase prices set forth in the contracts. This provision provided:

"Purchase Price Adjustment. No later than November 15, 2005, the parties shall obtain a duplicate original or certified copy of Permanent Lender's (as defined below) appraisal of the Property (which appraisal may assume completion of the Building, the Improvements and take the Leases with the Bank and Staples into consideration as fully open, operating and rent paying tenants, even if such assumption is considered an ‘extraordinary assumption’ by the appraiser, but shall not take this Agreement into consideration when determining appraised value) (the ‘Appraised Value’ ). In the event that the Appraised Value is greater or less than the Purchase Price, then Buyer may elect to no later than November 22, 2005 (i) terminate this Agreement and have the Earnest Money returned, be reimbursed for its Out-Of-Pocket Expenses (as defined below) and Buyer shall deliver the Third Party Reports (as defined below) to Seller or (ii) have the Purchase Price adjusted to equal the Appraised Value of the Property and Close. In the event Buyer fails to timely elect option (i) or (ii), Purchaser shall be deemed to have elected option (ii) above."

¶ 8 Paragraph 8 of the contracts defined the term "Permanent Lender," which was used in paragraph 3:

"Permanent Loan. Buyer's obligations are contingent upon Buyer, within ninety (90) days after the Effective Date, entering into a loan commitment (the ‘Loan Commitment’ ) with a lender (the ‘Permanent Lender’ ) prepared to provide permanent mortgage financing for the Property. The Loan Commitment shall provide for a non-recourse loan in an amount equal to 80% of the Purchase Price, at a rate of interest not to exceed 110-125 basis points over the 10-year treasury bill, with a loan term of 10 years amortized over 30 years with a loan fee not to exceed one-half of 1% (the ‘Permanent Loan’ )."

¶ 9 Following execution of the agreements on June 30, 2005, Lobo applied for financing from Old Second National Bank (Old Second), which ordered appraisals on the two properties. The appraisals returned valuations that were lower than the contract prices: the appraised value of the Canal property was $ 8 million ($ 1.5 million below the contract price) and the appraised value of the Bloomingdale property was $ 4 million ($ 200,000 below the contract price). Old Second issued a loan commitment for the properties on November 9, 2005, at terms that were less favorable to Lobo than the terms set forth in the purchase agreement; specifically, Old Second's loan commitments required a personal guarantee from Marc Davis, a larger down payment, and a higher interest rate. Davis forwarded the appraisal summaries and the loan commitments to V Land on November 14, 2005, and indicated that he was confirming a closing for both properties on December 1, 2005, at the adjusted purchase prices.

¶ 10 On November 29, 2005, V Land's counsel notified Lobo that Lobo was in default under the purchase contracts because it had failed to obtain appraisals from a "Permanent Lender" as required under the contracts; V Land indicated that the loan commitments from Old Second did not comply with the parties' agreements because the terms differed from those set forth in the contracts. Instead of giving Lobo 30 days to cure the alleged default, as provided under the contracts, V Land's counsel informed Lobo that V Land was terminating the contracts and directing the release of earnest money held in escrow. In response, Lobo claimed that it was in compliance with the terms of the contracts because the financing contingency was for Lobo's benefit and Lobo had waived it by arranging for financing on less favorable terms. Therefore, Lobo claimed, Old Second's appraisals complied with the contracts. Lobo requested a closing date of December 15, 2005. When V Land did not close on the properties either on the original closing date of December 1, 2005, or the extended date of December 15, 2005, Lobo filed a lawsuit for specific performance and damages based on the failed closing. Lobo recorded lis pendens notices with respect to each property shortly thereafter.

¶ 11 In its answer and affirmative defenses, V Land raised several affirmative defenses to Lobo's complaint,...

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