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Foster Enterprises v. Germania Fed. Sav.





APPEAL from the Circuit Court of La Salle County; the Hon. THOMAS R. CLYDESDALE, Judge, presiding.


The plaintiff, Foster Enterprises, Inc., filed this action in the Circuit Court of La Salle County, seeking specific performance and damages for breach of a certain contract it had entered into with the defendant, Germania Federal Savings and Loan Association. A jury returned a verdict for the plaintiff, awarding it specific performance and money damages in the amount of $257,000. In a post-verdict ruling the trial court set aside the award of specific performance but permitted the damage award to stand. Both the plaintiff and defendant have appealed the verdict of the circuit court.

Prior to October 1974, Germania had loaned money to a certain contractor/developer for the purpose of constructing apartment projects in Batavia, Mount Vernon, Sterling and Peru, Illinois. As a result of the lender's inadequate supervision of periodic payouts, it became necessary to foreclose on the partially completed Peru project, for which Germania received a sheriff's deed in December, 1975. For nearly a year and a half, the financial institution attempted unsuccessfully to sell the unfinished apartments or alternatively to enter into a contract with a builder to finish the project.

These attempts became more urgent as the City of Peru (City) filed condemnation proceedings seeking a court order mandating the repair or demolition of the incomplete buildings. The Peru project included three partially completed buildings containing 52 apartments. One of the three buildings was four inches out of plumb and the other buildings had been vandalized. The real estate described in the sheriff's deed also included over four acres of excess land upon which numerous concrete slab foundations had been constructed.

The idled apartment project commanded Germania's utmost attention when on May 20, 1977, as a result of the City's condemnation action, the La Salle County Circuit Court entered an order directing work to commence on the property within five days or the buildings would be razed at Germania's expense. Prior to May 20, 1977, negotiations had been initiated between Germania and the plaintiff for the sale and/or repair of the Peru project. On May 26, 1977, the negotiations between Foster and Germania culminated in an agreement which was prepared by Germania's president, William Osborne. Osborne hand-carried the agreement from Alton to Bloomington where he met with agents of Foster, and thereafter left for Peru where a local contractor was obtained to move construction equipment onto the project site. The City was notified that construction had begun.

Key portions of the Foster-Germania ageement are excerpted here:

"1. Construction contracts shall be entered into between Germania Federal and various subcontractors subsequent to submission and approval by Germania Federal of such bids on all work necessary to complete the initial 52 units of the project. Said approval shall not be unreasonably withheld by Germania. * * * The cost of completing the project shall be borne by Germania Federal. Insofar as is reasonably possible, Germania Federal shall carry, at its own expense, insurance covering not only fire, wind and other such hazard risks, but also liability insurance naming Foster as an additional insured thereon. Additional liability insurance required by Foster shall be an expense of Germania Federal provided prior showing of need and approval is obtained. Foster will take no responsibility for delays or damages arising from problems with governmental agencies, labor or union problems, strikes, weather, site conditions, or delays caused by material suppliers; however Foster will pursue the completion of the project with due commercial diligence.

2. Foster will earn an add-on charge of 5% of the total bids from subcontractors on all work necessary to complete the initial 52 units of the project for acting as supervisor of the construction if Foster does not exercise the option to purchase contained herein.

3. Germania Federal shall retain title ownership of the real estate and improvements during the construction phase until the three (3) buildings with a total of fifty-two (52) units are completed and leased to 90% occupancy and shall disburse construction funds after submission of proper contractor's affidavits and lien waivers and inspection and approval of the work completed by an appraiser acceptable to Germania Federal. * * *

4. Interest at the rate of 8 3/4% on the funds distributed during construction shall be added as it accrues to the total cost of the completed improvements.

5. Germania Federal shall advertise, rent and manage the apartments for eight months from the time the total improvements are completed in a habitable condition or no longer than 60 days following attainment of 90% occupancy, whichever is sooner. All net rental received by Germania Federal shall be applied to the interest charged on funds disbursed during construction. When 90% occupancy is obtained, the sale price from Germania Federal to Foster shall be determined based upon a market value appraisal acceptable to both parties. The sale price will not exceed 80% of said market value appraisal. The agreed upon value of the excess land separated from that required for the initial 52 units is $63,000.00 * * * said amount to be included as a component of the sales price. The second component is construction costs estimated at $460,000. The third component is the amount due Germania Federal for land and improvements in place prior to the date of this agreement, value to be determined by the market upon attaining 90% occupancy. The appraisal shall consider projected rental income from the total project providing for a 5% vacancy factor based on rentals being obtained at the time 90% occupancy is attained and shall also consider costs of debt service at 8 3/4% interest, all normal and reasonable costs of operation * * * and a fee of 5% of gross rentals to Foster. Depreciation shall not be considered as a cost of operation.

6. Foster shall have sixty (60) days from the time said purchase price is determined to exercise the option to purchase. Germania Federal shall finance the purchase price at not more than 8 3/4% interest for a term of twenty (20) years * * *. Foster shall execute a Note and mortgage acceptable to Germania Federal which shall provide generally as follows:

a. No personal liability.

b. Waiver of any right of redemption Foster may have pursuant to applicable law.

c. Release of parcels of the undeveloped land as provided hereinafter.

8. In the event Foster should decline to purchase the project or in the event Germania Federal and Foster are unable to agree on a sale price within a period of one (1) year from the date of completion of the 52 apartment units, or 60 days following attaining 90% occupancy, whichever is sooner, Foster shall be entitled only to the 5% add-on charge as provided above and all duties and liabilities of the parties to each other pursuant to this agreement shall cease."

There is now a sharp controversy over the application of this agreement to events which occurred subsequent to its execution.

Among the subsequent events which occurred was the completion of the 52 apartment units begun several years earlier. Occupancy in the units reached a 90% rate on January 24, 1978. At that time, an appraisal of the project was undertaken by Roy R. Fisher, Inc., at the request of the defendant herein, Germania. The Fisher corporation had done appraisals for Germania in the past and was retained by Germania because of satisfactory past performance.

Germania received the completed appraisal from Fisher on January 27, 1978. After reviewing the bottom line figure of $925,000, Germania sent a letter to Foster, along with a copy of the appraisal report. Germania's letter rejected the appraisal and stated that the bottom line figure "should be closer to $1,250,000." Had such an appraisal been made and a sales price calculated upon 80% of $1,250,000, Germania would have received slightly more than its book value for the Peru project.

Foster responded that it intended to exercise its option to purchase based on 80% of the Fisher appraisal, which Foster accepted and approved. Germania made a counteroffer to sell for 100% of the Fisher appraised value, a sale price just $1,700 more than Germania's posted book value, but Foster responded that it intended to strictly adhere to the 80% of value provision in the previously executed contract. Thereafter, Germania had the property appraised by its staff appraiser, Paul Pope. The Pope appraisal amounted to $1,200,000. By letter of April 7, 1978, Germania advised Foster that it found the Pope appraisal acceptable. If the sale had occurred at 80% of the Pope appraisal, Germania would have received approximately $1,000 more than its posted book value of the Peru property. Foster rejected the new appraisal and adhered to its position that its option to purchase was validly exercised based on the Fisher appraisal.

Shortly after the exchange regarding the Pope appraisal, Germania sent Foster a check for $33,752.56, being the contractually determined 5% add-on payable to Foster in the absence of an agreed appraisal price. The next day Foster filed the instant action against Germania.

The cause proceeded to trial with Foster seeking specific performance of the disputed option to purchase based upon the price established by the Fisher appraisal. In the alternative, Foster sought damages for breach of contract. This pleading for relief in the alternative was opposed by Germania in a motion at the close of all the proofs. Therein, the defendant sought to have the court order Foster to elect as its remedy either specific performance or money damages. The court denied Germania's motion to elect remedies but took under advisement that party's motion to direct a verdict against Foster denying the equitable relief prayed for. The ...

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