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Kinsey v. Scott





Appeal from the Circuit Court of Lake County; the Hon. Harry Strouse, Judge, presiding.


The defendant, William E. Scott, appeals from a judgment in a bench trial awarding the plaintiff, Helen E. Kinsey, $11,800 in damages based upon defendant's fraudulent misrepresentations in the sale of an apartment building to plaintiff. On appeal, the defendant raises four contentions of error: (1) that the evidence was insufficient to prove fraudulent misrepresentation; (2) that the five-year statute of limitations (Ill. Rev. Stat. 1981, ch. 110, par. 13-205) barred the plaintiff's cause of action; (3) that the trial court erred by failing to strike the testimony of the plaintiff's real estate appraiser; and (4) that the court below erred in determining the amount of damages by failing to consider and deduct from the award of damages the rent the plaintiff received from a basement apartment.

The plaintiff filed a two-count complaint alleging that the parties entered into a written contract in 1973 for the purchase of a five-unit apartment building owned and built by defendant; that the building was originally constructed as a four-unit apartment building and subsequently modified by defendant to add a fifth unit without a building permit; that defendant represented that he owned a validly constructed five-unit apartment building and had no notice of any dwelling code violations, and suggested the actual rentals of all five units to induce plaintiff to enter the agreement; that plaintiff relied on these representations in signing the contract; and that plaintiff learned in 1981 that the fifth unit was constructed in violation of city ordinances. It appears that count I is based upon breach of contract for misrepresentations, and count II is based upon fraudulent misrepresentation and deceit.

At a bench trial the following evidence was adduced. On July 24, 1973, the plaintiff entered into an installment real estate contract with the defendant and his wife whereby the plaintiff agreed to purchase over a 20-year period an apartment building located at 924 Linden Street in Waukegan, Illinois. Originally, the property was a vacant lot, which the defendant purchased in 1968 with the intent to construct an apartment building on it. At the time he purchased the vacant lot, the defendant was aware that the property was zoned residential and would have to be rezoned in order to allow him to construct an apartment building on it. Therefore, he retained an attorney who prepared a formal application for rezoning in which it was represented to the city of Waukegan (city) that the defendant intended to construct a four-unit apartment building. After he canvassed his neighbors to receive approval of the immediate neighborhood to build a four-unit apartment building, the defendant took part with his attorney in formal hearings before the city concerning his application for rezoning to allow him to build a four-unit apartment building. The city rezoned the property and issued the defendant a building permit for the construction of four units. Defendant's contractor then built the four-unit structure, into which the defendant moved in September 1968.

Approximately two months after occupying the building, the defendant himself, with the help of a nephew, began to make capital improvements in the basement without first having obtained a building permit. He continued making improvements in the basement, without obtaining any building permit, until November 1970, by which time he had created a fifth apartment in the basement. He rented the basement apartment for the first time the same month.

Before renting the apartment, however, the defendant testified that he contacted his neighbor, Abe Cohen, a building inspector for the city of Waukegan, about whether he needed a building permit. Cohen advised the defendant that he should have had a building permit, that it was too late to get one at that time, and that there was not much sense in getting one. However, Cohen did not actually tell the defendant that he "had a violation." Defendant said Cohen also informed him that, in order to permit someone to live in the basement apartment, the defendant would have to construct a second escape door going up through one of the other apartments from the basement. Cohen did not inform the defendant that he needed a building permit to construct the exit door. The defendant constructed this exit without applying for or obtaining a building permit.

In March 1973, the defendant listed the property for sale with Best Realty. He gave the representative of the real estate company specific information to use in the listing agreement, which indicated that the apartment building contained five rental units and specified the monthly rent charged for each apartment. The plaintiff contacted Best Realty the following month, and the representative showed her the listing agreement. In April, the plaintiff visited the building in question and inspected all five apartments with the real estate salesperson, who informed the plaintiff that the income from the property was very good. The plaintiff also inspected the building a second time the following month.

On May 15, 1973, the plaintiff met with the defendant and his wife and the real estate agent. The defendant showed the plaintiff the income from all the apartments and also discussed the attendant expenses. According to the plaintiff, the defendant informed her that the building was very nice, that he built it himself, that she would not have any problems with it, and that she would have a good income. The plaintiff related that she asked the defendant whether there was anything wrong with the building, and he responded in the negative. She thought she asked the defendant whether the building complied with the city's building codes. The plaintiff admitted that she never made an inquiry of the city regarding the zoning or condition of the apartment building. She signed the offer to purchase the same day. An agreement for deed was executed by the parties on July 24, 1973.

The defendant admitted telling the plaintiff in May 1973 that the building was a good, fairly-new structure. However, he denied that the plaintiff asked him questions regarding the zoning of the building or whether the edifice conformed to the city's building codes. He represented to the plaintiff that she would be able to rely upon the income from four units while she lived in the fifth apartment. He realized that the plaintiff would be able to afford the building only if the apartments produced sufficient rental income and that the sale might not have been consummated had she been aware she would lose rent from an apartment. In addition, the defendant did not tell the plaintiff that the work in the basement apartment was accomplished without a building permit or that the basement apartment was constructed without the city's approval. Also, he did not inform the plaintiff that Mr. Cohen had indicated that maybe he should have obtained a building permit. According to the defendant, prior to selling the building, neither the city of Waukegan nor any person notified him of any building or zoning code violations.

The plaintiff rented the basement apartment from the time she purchased the building until August 28, 1981, when the city of Waukegan "red tagged" the particular apartment, claiming it was an uninhabitable residence. The zoning administrator of Waukegan, Kernel Parique, testified that this basement apartment was prohibited by the housing and health code because the code did not allow a basement apartment for the type of basement in this apartment, only storage space or a utility room. Mr. Parique stated that it was impossible or improbable to convert this basement apartment into a habitable place in conformity with the city's codes. Additional testimony was presented that the building codes and zoning ordinances of the city of Waukegan are public records which are available to the general public; and that upon request, the city's staff will assist members of the public in interpreting or reviewing the codes and ordinances. He testified that Abe Cohen, who was now deceased, was a building department manager in charge of issuance of building permits.

From the time the city sent her the notice that she could not rent the basement apartment, the plaintiff has not rented it. This lawsuit was filed on August 9, 1982. At the time of trial, the basement apartment was still empty. Sometime after August 1981, the plaintiff listed and has attempted unsuccessfully to sell the building as a four-unit structure.

John O'Brien, a real estate appraiser, testified for plaintiff as an expert witness. O'Brien appraised the apartment building in issue in 1982. Although he did not appraise the building in 1973, he stated that, based on his knowledge of the property, he did not feel that its condition had changed materially since 1973. He described the procedures he would use to establish the value of the building as of 1973. Mr. O'Brien used a conservative gross rent multiplier for 1973, which he based on his experience as an appraiser. Using the formula, he rendered an opinion that the value of the building in 1973 as a four-unit structure was $56,000 and as a five-unit structure was $68,000. The trial court found for plaintiff on her fraudulent misrepresentation theory and awarded damages in the amount of $11,880.

As the parties have addressed only the fraudulent misrepresentation theory upon which the court below rendered judgment for plaintiff, we confine our analysis to the issue as presented to us.

Defendant first contends that plaintiff failed to prove a fraudulent misrepresentation by defendant. In this regard, defendant maintains there was no misrepresentation. He contends that his statement that the building was a five-unit apartment building was accurate, and that he never directly misrepresented the basement apartment was in compliance with the building code nor can such misrepresentation be implied. Also, defendant contends that even if there was a misrepresentation, there was no reliance on the misrepresentation since plaintiff inspected the building and could have checked with the city authorities to determine if there were any code violations. Defendant further contends that plaintiff failed to prove an intent to deceive. Finally, defendant argues that if there was an implied misrepresentation as to the ...

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