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Schwachman v. Greenbaum Mortgage Co.

OPINION FILED MARCH 10, 1983.

MEYER SCHWACHMAN, PLAINTIFF-APPELLEE,

v.

GREENBAUM MORTGAGE COMPANY ET AL., DEFENDANTS. — (CONTINENTAL ILLINOIS REALTY, DEFENDANT-APPELLANT.)



Appeal from the Circuit Court of Cook County; the Hon. Raymond E. Trafelet, Judge, presiding.

JUSTICE JOHNSON DELIVERED THE OPINION OF THE COURT:

Rehearing denied June 30, 1983.

Plaintiff, Meyer Schwachman, sued defendants, Continental Illinois Realty (CIR), Greenbaum Mortgage Company, Greenbaum Venture Corporation, and Greenbaum Equities Corporation, to recover damages for breach of a promise to provide mortgage loans to purchasers of condominium units in a building owned by Schwachman and his partners. All defendants were voluntarily dismissed except defendant-appellant, CIR. A jury trial resulted in a verdict for plaintiff in the amount of $111,000.

Defendant CIR filed a post-trial motion seeking judgment notwithstanding the verdict or in the alternative a new trial. That motion was denied and this appeal followed.

The issues presented for review are (1) whether plaintiff failed to prove his case and his damages, thus, entitling defendant to a directed verdict; (2) whether the trial court erred in failing to require plaintiff to prove his case by clear and convincing evidence rather than a preponderance of the evidence; (3) whether the promise relied upon by plaintiff was enforceable; and (4) whether the trial court erred in failing to declare a mistrial after certain remarks by plaintiff's attorney.

In the fall of 1972, Meyer Schwachman and his partner, Harold Karp, both real estate developers, proposed the purchase of an apartment building located at 4200 North Marine Drive, in Chicago, for the purpose of condominium conversion. Schwachman and Karp sought help from Greenbaum Mortgage Company in finding a source of financing for the purchase of the building and subsequent end loans. "End loan" is the term used by the parties to describe subsequent mortgage loans to potential buyers of the condominium units.

Greenbaum Venture Corporation, a wholly owned subsidiary of Greenbaum Mortgage Company, was formed for the purpose of carrying out the condominium conversion project in partnership with plaintiff. Plaintiff and his partner, Harold Karp, then entered into a partnership with the newly formed Greenbaum Venture Corporation. Profits from the project were to be divided; 50% to Greenbaum Venture Corporation and 50% to plaintiff and Karp.

Through the efforts of Greenbaum Mortgage Company, plaintiff was introduced to Michael Bailie, a representative of defendant CIR. Defendant was a real estate investment entity that specialized in making short-term loans on real estate projects. Defendant was directed by a group of trustees in California, but Bailie conducted CIR's business out of a Chicago office. At trial, the parties disagreed as to whether Bailie had the authority to make commitments which were binding upon CIR or whether he was subject to the direction of the trustees for approval of his decisions.

On April 13, 1973, Bailie issued a commitment letter on behalf of CIR agreeing to lend up to $825,000 for two years to the partnership of Schwachman, Karp and Greenbaum Venture for the purchase and conversion of the building at 4200 North Marine Drive. Plaintiff and Karp testified that they told Bailie that they could not undertake the project without a firm commitment for end loan financing. They claim that Bailie promised that CIR would provide end loan financing if such financing could not be procured elsewhere. According to plaintiff, Bailie explained that CIR would provide the end loan financing via the "warehousing method." That method required defendant to loan the money to a third party, possibly a savings and loan association, who would in turn loan the money to the purchasers of the condominium units. The third party would then refinance the loan and repay defendant within two or three years. Plaintiff testified that it was his understanding that Bailie had complete authority to act in defendant's behalf in making various loan commitment decisions. Therefore, plaintiff considered defendant bound by Bailie's promise to provide the end loan financing.

On April 25, 1973, a real estate purchase contract was signed for the purchase of the building. Closing was to take place on or before June 30, 1973. On June 11, 1973, the partnership of Schwachman, Karp and Greenbaum Venture received a letter from Uptown Federal Savings and Loan Association (Uptown), stating that it would entertain mortgage loan applications from bona fide purchasers of condominium units in the project. It appears that none of the parties involved in the project considered the letter to be a binding commitment on Uptown to provide end loan financing. The record is unclear, but it appears that plaintiff and his partners continued to seek a source of end loan financing after receiving the letter from Uptown and prior to the date set for closing the purchase contract.

Plaintiff and Karp testified that based on Bailie's promise that end loan financing would be made available by defendant, they entered into the mortgage loan agreement with defendant for $825,000 and finalized the purchase agreement for sale of the building in August 1973.

The Uptown letter was withdrawn two weeks after it was issued. Plaintiff claims that Bailie was told of the withdrawal when it occurred. Bailie claims that he first learned of the withdrawal sometime in 1974. By the middle of 1974 it became apparent that the project was unable to get a committed source of end loan financing. According to Bailie, it was at that time that he first discussed the warehousing method of end loan financing and not in April 1973, as plaintiff claims. Bailie claims to have sought permission from his superiors to "explore the possibility" of such financing. He denied making any promises to the plaintiff and his partners.

In August 1974, the trustees of defendant CIR notified Bailie that defendant could not commit itself to end loan financing of the project. This was communicated to plaintiff and his partners. No other source of financing was found, and the partnership was unable to sell the condominium units.

In late 1974, plaintiff and his partners deeded the building to defendant CIR in lieu of foreclosure. The building was later sold by defendant at what it claims was a loss of $474,000. Plaintiff claimed lost profits of $425,000 and out-of-pocket losses of $10,900. Prior to the institution of this lawsuit, Harold Karp ...


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