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Grill v. Adams





Appeal from the Circuit Court of Cook County; the Hon. Reginald J. Holzer, Judge, presiding.


In this action involving a real estate sales contract, the trial court ordered defendants to specifically perform a contract for the sale of their 69% interest in certain real estate and to pay damages based on the value of the remaining fractional interest not owned by them. Defendants contend that: (1) the judgment for specific performance is contrary to law and to the manifest weight of the evidence; and (2) the judgment for money damages is contrary to general principles of law, contrary to the manifest weight of the evidence and is grossly inequitable because: (a) it was a term of the contract that only 69% of the real property interest was being sold; (b) plaintiffs waived the requirement that the 31% interest be conveyed; and (c) plaintiffs' failure to mitigate damages barred recovery of a money judgment. *fn1

Defendants Roy, Bruce and William Adams, who are brothers, own a 68.993% (hereinafter referred to as 69%) interest in the Pelouze Building, located at 230 East Ohio Street in Chicago. They hold their interest as beneficiaries of Land Trust No. 30313 at American National Bank. The brothers, who are businessmen, do not reside in Illinois. The office building, currently valued at $1.6 million, is fully occupied with business tenants. The remaining 31.007% (hereinafter 31%) interest is owned by Harris Bank, as trustee for the will of Helen T. Pelouze.

In the spring of 1977, defendants discussed selling the property. Bruce, a California resident, through the suggestion of a local real estate broker, John Martin, became interested in tax-deferred transactions under Interal Revenue Code section 1031. Martin prepared a listing agreement for the real estate at the price of $795,000, dated April 12, 1978, which stated that the deal was to be a 1031 exchange. Only defendants were identified as the owners and so signed the agreement. Both Roy and Bruce testified that Martin was informed of the split ownership and that they assumed Martin would obtain the Harris' signature on the listing agreement. Martin contacted a Chicago broker from Arthur Rubloff and Company about the property.

Plaintiffs are Stewart L. Grill, a real estate developer and investor since 1958, and Stuart M. Kaplan, a real estate broker for over 20 years. Plaintiffs were introduced to the transaction by the Rubloff representative. Shortly after expressing an interest, they inspected the property and received the rent roll. Thereafter, their attorney prepared a written offer, dated September 27, 1978, to purchase the parcel for $700,000. The rider attached to the offer referred to the exchange feature of the sale.

A counteroffer prepared by broker Martin at Bruce's direction and dated October 14, contained two alterations to the offer. The purchase price was increased to $775,000 and the following language was inserted:

"This transaction [is] to be a 1031 Tax Deferred exchange into properties not located in the State of Illinois with closing on or before 1/15/79. Should the up property [the exchange property] not be located by this date it is agreed to extend the closing date in order for the owners of the office building to effect the exchange."

Plaintiffs signed the counteroffer on October 20 and Bruce acknowledged the sellers' acceptance on October 31, 1978. Plaintiffs deposited $35,000 earnest money into escrow and thereafter took steps to secure financing. They also actively participated in the management of the property in accordance with the contact provision that sellers could not make major changes or lease renewals without plaintiffs' approval.

Martin wrote to James Andras, a trust officer handling the Pelouze Trust at Harris Bank, on November 11, 1978, to inform him of defendants' intent to sell the property and that the purchase price of $775,000 included the amount which would represent the value of the Harris' 31% ownership. Roy contacted the beneficiary of the trust in December of 1978 in order to attempt to gain her cooperation.

Kaplan and Grill testified that they did not know precisely when they learned of the complete ownership, but both thought it was after the contract signing. On cross-examination, however, Kaplan stated that he couldn't recall if it was before or after the contract signing. The listing agreement, the offer to purchase, and the counteroffer all indicate that defendants owned the property and no mention was made of Harris Bank.

Kaplan testified that at the time the contract was executed, defendants were interested in a particular exchange property, but it was not until September 15, 1979, that the parties entered into an exchange agreement involving the Reatta Shopping Center near Houston, Texas. In this document, Harris was identified as one of the title holders to the property, and defendants declared that they had secured a written proposal from Harris to sell its proportionate share in the Pelouze Building for $240,000. Kaplan stated that the parties worked out an understanding with Harris wherein plaintiffs would increase the sales price and the brokers would reduce their fees so that Harris obtained the sum of money it desired for its interest. The exchange amount reflected a new sales price of $779,705. Harris was not a party to the exchange agreement.

Defendants testified they understood that the current mortgage on the Reatta property was assumable at the rate of 9 3/4%. Thereafter defendants were notified by the Reatta lender that the loan could not be assumed and the new interest rate would be 12%. Defendants testified that they then explored other methods of financing, but none were feasible. The Reatta exchange contract was therefore abandoned. The exchange agreement provided that in the event that the mortgagee and/or note holder changed the terms and conditions of the note, defendants had the right to terminate the contract.

The only specification placed on the exchange property by defendants in the original contract was that it not be Illinois property. Roy testified that after the Reatta deal fell through, he continued to review paperwork on additional properties, but that because of the interest climate at the time, "there was absolutely nothing that fit the parameters [sic]." He further stated that rising interest rates stopped the Reatta deal "and any other deal that came down the line." Roy and Bruce testified that Martin continued to send them profiles of possible exchange properties through 1980. Kaplan stated he sent listings to defendants' attorney, although he wasn't sure if it was before or after Reatta, and a Houston broker also continued to submit prospects to defendants through the summer of 1980.

Plaintiffs filed this lawsuit in August 1980 requesting that the court direct defendants to specifically perform the contract by conveying "100 percent of the beneficial interest" in American National Bank Trust No. 30313 (count I); and, that the court enter judgment in an amount in excess of $800,000 for damages which plaintiffs suffered as a result of defendants' conduct (count II). ...

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