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Giacomazzi v. Urban Search Corp.





APPEAL from the Circuit Court of Cook County; the Hon. HAROLD M. NUDELMAN, Judge, presiding.


Plaintiffs, Glen and Pamela Giacomazzi, filed suit in the circuit court of Cook County to recover an earnest money deposit of $3750 made for the purchase of a condominium unit owned by defendant Gunnar Bennett. This deposit was placed with the broker for the transaction, defendant Urban Search. Prior to trial plaintiffs moved for summary judgment on count I of the complaint, which requested rescission on the basis of mistake or misrepresentation. The court granted summary judgment on this count, awarding plaintiff $2750 and defendant Bennett (who had counterclaimed for damages incurred by the failure to complete the sale) $1000, and declared that defendant Urban Search (which had cross- and counter-claimed for its commission) had fulfilled its brokerage duties. The court then orally denied plaintiffs' motion for summary judgment on count II, which was premised on Bennett's noncompliance with disclosure requirements of the Illinois Condominium Act, and granted summary judgment on this count in favor of Bennett. This appeal by all parties resulted.

The facts as contained in the pleadings, documents, depositions, and interrogatories are as follows: Defendant Bennett occupied a unit in a cooperative apartment house as a sublessee. In January 1973, he was informed that Development Management Group, Inc. (Development), had purchased the building to convert it into condominium units. Bennett dealt with sales agent Sue Gin, who informed him of the various costs and assessments involved in the project. Bennett then agreed to purchase the unit and received title from Chicago City Bank & Trust Company in April 1973. The 1973 tax assessments were sent to Development which apportioned the assessment, billing each unit owner individually. Bennett paid his 1973 tax installments directly to Development.

In 1975, Bennett contacted sales agent Gin, now with the Urban Search brokerage firm, to sell his condominium unit. Plaintiffs have presented documents to demonstrate that Urban Search had the same address and telephone number as Development and additionally, that two officers of Development were employees of Urban Search. Urban Search showed Bennett's unit to plaintiffs, who signed a contract for its purchase on August 27, 1975; the contract was signed by Bennett on September 4, 1975. Plaintiffs allege that they inquired about the real estate taxes prior to the execution of the contract and were told by Gin that the 1975 bill was $531 per year. Urban Search, however, denies such a representation. Approximately one month later, Gin presented plaintiffs with a disclosure form prepared by Bennett which listed the "Last Ascertainable Tax Figure" as $531. Bennett later presented an affidavit stating that he had derived this figure from his 1974 income tax form filed earlier in 1975.

Plaintiffs deposited $3750 with Urban Search as earnest money for the unit, the purchase price of which was negotiated as $42,000. The standard form contract called for defendant Bennett to convey to plaintiffs by a recordable warranty deed subject to, inter alia, general taxes for the year 1974 and subsequent years. No specific reference to the amount of the taxes is reflected in the contract.

Sometime between July and August of 1975, the 1974 Cook County tax bills were mailed. This bill, as in the past, went directly to Chicago City Bank & Trust holding for the beneficial owners (Development and Bennett). Both defendants deny knowledge of the increased tax bill prior to the contract signing or presentation of the disclosure statement.

Plaintiffs allege that they learned of the increased bill (from $531 to $912) in December 1975, at or about the time set for closing the transaction. When Bennett refused to renegotiate the unit price, plaintiffs refused to close and demanded return of their earnest money. Plaintiffs filed suit against Bennett and Urban Search for the earnest money, seeking rescission based on mutual mistake of fact or negligent or intentional misrepresentation.

Bennett, through Urban Search, completed the sale of his unit to another purchaser. Upon plaintiffs' suit, he counter and cross-claimed for damages and lost profit on the second sale caused by plaintiffs' refusal to complete the sale. Urban Search also cross and counter-claimed for its sales commission on the aborted sale. Each defendant maintains that any misrepresentations or mistakes of fact are attributable to the other defendant. All parties have denied any liability. Following the trial court's rather equitable attempt to split the disputed earnest money, all parties appealed.


• 1 In their first count plaintiffs allege that defendants' misstatements concerning the amount of the real estate tax caused a material mistake of fact which should allow rescission of the contract. It is well settled that "[r]escission of a contract is proper where one party mistakenly enters into a contract because he reasonably relies on the other party's innocent misrepresentations of a material fact." (Geist v. Lehmann (1974), 19 Ill. App.3d 557, 560, 312 N.E.2d 42.) And further, if the misstatements were not innocent, then too rescission is allowed, although perhaps on a less demanding standard. Fraudulent or knowing misrepresentation is characterized by a statement of material fact, false and known to be false by the person making it, which is intended to induce an act by the other party, who, in so acting, relies on the truth of the statement. Roth v. Roth (1970), 45 Ill.2d 19, 23, 256 N.E.2d 838.

Thus, although the elements of fraudulent misrepresentation and mutual mistake of fact are similar, the required evidentiary showings of reasonable or actual reliance differ. So too, the relief to be granted in each situation can vary. "It is important to remember that the doctrine of mutual mistake is not a substitute for the doctrine of misrepresentation. What would be equitable when the defendant is guilty of fraud is not necessarily equitable when he made no misrepresentations at all; what is due care on the part of the plaintiff may be quite different when the plaintiff relied on a misrepresentation than when the plaintiff was merely mistaken." (Diedrich v. Northern Illinois Publishing Co. (1976), 39 Ill. App.3d 851, 860-61, 350 N.E.2d 857.) Accordingly, resolution of the mistake/misrepresentation claims in the case at bar depends upon the facts relative to reliance, materiality, due care, knowledge, and intent of the parties.

Initially, we note that whether mistake or misrepresentation, the matter of the misstatement must be material. To be material, the condition must be essential to one of the parties and must be mutually agreed upon and understood by the parties. (See also Dillenberger v. Ziebold (1979), 70 Ill. App.3d 585, 588-89, 388 N.E.2d 936.) In Dillenberger, that the actual amount of tillable acreage (over 145 acres) contained on a large piece of land (over 352 acres) bid for in gross, differed from that roughly estimated prior to the sale by approximately 30 acres, was insufficiently material to mandate rescission. Such a result is consistent with Corbin's discussion of mistakes in value of land:

"Rescission of a contract for the sale of property, because of a mistake as to a factor materially affecting value, is usually obtainable if the mistake was `mutual.' If the mistake was unilateral, rescission is less often granted than in the case of construction contracts. This may be justified for the reason that in sales cases the parties are more likely to understand that they assume the risks as to such factors; this may be the more usual custom." (3 Corbin on Contracts § 605, at 643-44 (1960).)

Thus in Dillenberger, although the difference in tillable acres was substantial, the trial court properly found that it was not material or essential to the contract for transfer of the land. In contrast, in Geist v. Lehmann (1974), 19 Ill. App.3d 557, 312 N.E.2d 42, the appellate court stated that the mistake as to property boundaries in that case could be material and could warrant rescission but ...

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