Magnus v. Lutheran General Health Care System

• Decision Date: 02 September 1992
• Docket Number: Nos. 1-91-2534,1-91-2661,s. 1-91-2534
• Citation: 176 Ill.Dec. 209,601 N.E.2d 907,235 Ill.App.3d 173
• Parties: , 176 Ill.Dec. 209 Alexander B. MAGNUS, Jr., Plaintiff-Appellant, v. LUTHERAN GENERAL HEALTH CARE SYSTEM and Parkside Development Corporation, Defendants-Appellees. PARKSIDE DEVELOPMENT CORPORATION, Plaintiff-Appellant, v. Alexander B. MAGNUS, Jr., Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 907

601 N.E.2d 907

235 Ill.App.3d 173, 176 Ill.Dec. 209

Alexander B. MAGNUS, Jr., Plaintiff-Appellant, v. LUTHERAN GENERAL HEALTH CARE SYSTEM and Parkside Development

Corporation, Defendants-Appellees.

PARKSIDE DEVELOPMENT CORPORATION, Plaintiff-Appellant, v. Alexander B. MAGNUS, Jr., Defendant-Appellee.

Nos. 1-91-2534, 1-91-2661.

Appellate Court of Illinois First District, Third Division.

Sept. 2, 1992.

Rudnick and Wolfe, Chicago, for plaintiff-appellant, Alexander B. Magnus, Jr.

Mayer, Brown & Platt, Chicago, for defendant-appellee, Parkside Development Corp. Justice CERDA delivered the opinion of the court:

This is a consolidated appeal arising from the purchase and sale of various assets, including real estate, related to the development of a retirement housing project in Arlington Heights. Albert B. Magnus, Jr., and his partner, Joel Hillman, sold the assets to Lutheran General Health Care System ("Lutheran General") and its subsidiary, Parkside Development Corporation ("Parkside"). One of the improvements on the property was a house. Relying on an October 17, 1986, Letter of Intent ("Letter of Intent"), Magnus attempted to exercise an option to remove the house by notifying Lutheran General and Parkside, who responded that Magnus had no such right. Magnus then brought an action for declaratory judgment, breach of contract, specific performance, a constructive trust, and reformation of the contract. The trial court granted summary judgment in favor of defendants, Lutheran General and Parkside, on each of Magnus's claims.

On appeal, Magnus asserts that the trial court erred by entering summary judgment in favor of defendants because (1) the Letter of Intent was an enforceable contract; (2) the December 29, 1986, Nursing Home Purchase Agreement ("Agreement") did not supersede the Letter of Intent; (3) the parties never agreed to exclude the house option; (4) there should have been a constructive trust because defendants knowingly procured Magnus's house through a breach of fiduciary duty committed by Magnus's attorney; and (5) the Agreement should have been reformed because defendants knew that Magnus was mistaken about the Agreement's terms and failed to inform him of the mistake. We affirm the summary judgment in favor of defendants on all of Magnus's claims.

One of the important issues in this case is whether the purchase agreement, which has a clause stating it constitutes the entire agreement and supersedes all other prior agreements, prevails over a prior letter of intent.

After Magnus filed his lawsuit, Parkside filed a claim against Magnus pursuant to the Agreement's indemnity clause. The trial court entered summary judgment against Parkside and in favor of Magnus on the indemnity claim. On appeal, Parkside asserts that the trial court erred (1) in denying its motion for summary judgment on its indemnity claim; and (2) in sua sponte entering summary judgment in favor of Magnus on the indemnity claim even though no motion was pending. We affirm.

In 1986, Magnus owned approximately 40 acres of real estate in Arlington Heights. He was living in a private residence on the property, which also included the Magnus Farm Nursing Home Convalescent Center ("nursing home"). Magnus intended to build a retirement housing complex on the portion of the property known as parcel four. After he obtained financing through the sale of $29.4 million in tax-exempt revenue bonds issued by the Village of Arlington Heights, Magnus and Hillman formed a partnership.

In the spring of 1986, Hillman began negotiating with Lutheran General's president, George B. Caldwell, for the sale of the project, including parcel four, the financing, and all related interests. Magnus later became involved in the negotiations. Hillman and Magnus negotiated separately with Lutheran General and had agreed not to disclose to each other the terms of their separate negotiations. Lutheran General honored that agreement.

In July 1986, Lutheran General and Magnus signed a proposed agreement for the purchase of Magnus's interest in the project. After months of rocky negotiations, Michael McCarthy, Lutheran General's vice-president and general counsel, sent a letter to Magnus on October 9, 1986, demanding strict compliance with their proposed agreement. Magnus responded that the proposed agreement was not binding and that he was ending the negotiations.

On that same day, however, Magnus gave his attorney, Arthur H. Evans, written authorization to negotiate the deal on Magnus's behalf with four conditions. Most of the conditions related to the price and financing of the sale of the project, the land, and the nursing home. The only condition related to the house was that Magnus could live rent-free in the house until October 1, 1987.

Negotiations resumed, and on October 17, 1986, Lutheran General prepared and signed a Letter of Intent, which provided that Lutheran General would purchase Magnus's interest in the project and that Lutheran General would lease the nursing home to Magnus for 12 months after the closing. The terms and conditions of the Letter of Intent included an option agreement for Magnus to remove the house after the closing as well as a provision that each party's obligations were subject to and contingent on the future execution of the Agreement. If the Agreement was not executed within 30 days, the Letter of Intent would terminate and the parties would be released from any and all obligations.

Magnus signed the Letter of Intent after making handwritten changes to paragraphs four and six. Under paragraph four, Lutheran General would reimburse Magnus for his share of the eligible costs from the bond proceeds. Magnus had already been reimbursed $200,000 for eligible costs, including the bond issuance, zoning, architects, marketing, and attorney fees. He was seeking another $200,000 reimbursement for those same costs.

After receiving Magnus's modified letter, McCarthy told Evans that Lutheran General would not double reimburse Magnus. Evans stated that he had explained Lutheran General's position to Magnus and that Magnus understood. Evans assured McCarthy that Magnus's handwritten changes related to eligible costs that had not yet been submitted to the trustee for reimbursement, not double reimbursement. Based on Evans's representations, McCarthy initialed Magnus's modifications and sent the letter to Evans.

Around October 27, 1986, Evans informed McCarthy that he had been mistaken and that Magnus wanted double reimbursement. McCarthy told Evans to explain to Magnus that Lutheran General did not agree to those terms. When Evans later told McCarthy that Magnus would not move on that point, McCarthy replied that Lutheran General considered it as another $200,000 in the purchase price that could not be reimbursed. Due to the inability of the parties to reach an agreement regarding paragraph four's interpretation, McCarthy sent a letter to Magnus on November 3, 1986, terminating the Letter of Intent and any further discussions.

On November 10, 1986, Magnus tendered to Lutheran General a proposed real estate sale contract and rider, which included his option to remove the house or be paid $175,000. McCarthy returned an unsigned copy of the contract and rider to Magnus on November 12, 1986 but signed a confidential copy of the rider and sent it to Lutheran General's attorneys for review.

Sometime in November 1986 Hillman met with McCarthy and agreed to take $200,000 less than his share of the purchase price so that Magnus could be paid the additional $200,000 eligible costs. Around November 16, 1986, the parties resumed negotiations. According to McCarthy, there were two major changes in the negotiations: the house option was out of the deal and Hillman's share of the purchase price was reduced by $200,000. When McCarthy told Evans that Magnus could buy the house for $175,000, Evans responded that he did not think Magnus would be interested in buying the house and that he did not want to take the offer back to Magnus because it might incite him. McCarthy told Evans that was his problem, that the house option was out of the deal, and that Lutheran General would agree to the $200,000 eligible costs.

Before the December 30, 1991, closing, McCarthy spoke with Evans, who indicated either that Magnus was still concerned about the house or did not know about the house. McCarthy told Evans that was his problem because they both knew the documents did not reflect that the house was still part of the deal. Evans then told McCarthy and Latham Williams, one of Lutheran General's attorneys, that the house option was out of the deal.

On December 29, 1986, Magnus signed the Agreement, which did not include a term entitling Magnus to remove the house or receive an additional $175,000. According to Magnus, however, he thought he had retained his option right under the Letter of Intent and did not intend by his execution of the Agreement to waive or cancel that right. Magnus stated that Evans never told him that his option to remove the house was out of the deal. He did not learn of Lutheran General's position until January or February 1987. When Magnus told McCarthy in March 1987 that he thought the house was in the Agreement, McCarthy responded that he was sorry that Evans did not convey the information to Magnus, but it had been negotiated out of the deal.

After his lease on the nursing home expired on August 13, 1987, Magnus notified Lutheran General that he wanted to exercise his option to remove the house from the property, in accordance with the Letter of Intent. In a November 9, 1987, letter, Lutheran General informed Magnus that he did not have such a right.

Magnus filed a lawsuit asserting claims for declaratory judgment, breach of contract, and specific performance based on defendants' refusal to permit him to remove the house or to pay him $175,000. When defendants moved to dismiss the lawsuit on the basis that...