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08/18/87 Ernest W. Naiditch, v. Shaf Home Builders

August 18, 1987





512 N.E.2d 1027, 160 Ill. App. 3d 245, 111 Ill. Dec. 486 1987.IL.1198

Appeal from the Circuit Court of Lake County; the Hon. John L. Hughes, Judge, presiding.


JUSTICE REINHARD delivered the opinion of the court. UNVERZAGT and WOODWARD, JJ., concur.


Defendants, Shaf Home Builders, Inc., Ted Shaf, and the First National Bank of Skokie, as trustee for trust No. 50027 (trustee bank), appeal from the judgment following a bench trial of the circuit court of Lake County which found in favor of plaintiff, Ernest W. Naiditch, on five of the six counts of his third amended complaint, awarding $51,547.08 in actual damages and $109,544.70 in punitive damages. Plaintiff cross-appeals the dismissal of count VI of his third amended complaint.

Defendants raise the following issues on appeal: (1) whether the complaint sufficiently stated a cause of action for fraud; (2) whether the trial court's finding of fraud was supported by clear and convincing evidence; (3) whether the trial court improperly based its finding of fraud upon misrepresentations regarding the structural integrity of the house; (4) whether plaintiff can recover for alleged wilful and wanton misconduct where the proved damages were solely for economic loss and there was no proof of an independent tort; (5) whether the failure to give notice of alleged problems with the air-conditioning system and the insulation barred plaintiff's recovery for these alleged defects under either the express or implied warranties; (6) whether plaintiff's claim for damages involving defects in the cathedral ceiling and the garage ceiling are barred by the statute of limitations; (7) whether the expense of plaintiff's expert witness is a proper element of actual damages; (8) whether the trial court improperly measured the damages based on the cost of effecting repairs of the problems; (9) whether the award of punitive damages was excessive; and (10) whether the trial court improperly determined that the express warranty contained in the contract expired in December 1986, rather than on October 15, 1981. Plaintiff's cross-appeal raises the following issue: whether the trial court erred by dismissing count VI of his third amended complaint alleging conversion.

Defendant Shaf has been in the business of constructing single family homes in the Chicago area for more than 30 years and operated Shaf Home Builders (hereinafter referred to with Shaf collectively as defendant). He developed a subdivision of luxury custom homes called High Ridge in Highland Park in the mid-1970's, and the house which is involved in this dispute was constructed in High Ridge in 1977. This 4 bedroom, 4 1/2 bath home was originally designed to serve as a model home and office for the High Ridge development, and for three years, the house served as headquarters for approximately 10 employees of Shaf Home Builders. There were no complaints from the employees regarding the house, and there was no testimony at trial which indicated that either defendant or any employee knew of any alleged defects in the house prior to the sale to plaintiff. The only apparent problem was an occasional water leak in the garage.

In April 1976, defendant filed the plans for the proposed house with the building department of Highland Park and obtained a building permit. In order to obtain a building permit in Highland Park, a builder was required to submit plans already approved and "affixed" with a seal by an architect for approval by the city. When the required plans for this house were submitted to the city, the city plan examiner made handwritten notations on the face of the plans, reflecting changes as a condition for issuance of a building permit. The changes required by the city included the addition of a ridge beam consisting of three 2- by 14-inch boards around a 3/8-inch plate within the peak of the cathedral ceiling in the living room and dining room area and the installation of a steel beam across the top of the sliding glass doors leading to the balcony above the garage. Once such changes were made on the plans, it was the dual responsibility of the builder and the city inspector to insure that the changes were complied with.

In the spring of 1977, construction began on the house. Some items, however, were omitted by defendant in the construction of the house. Instead of three 2- by 14-inch boards around a 3/8-inch plate within the peak of the cathedral ceiling, defendant used only a single 2- by 10-inch board. It was later determined that this omission, in the opinion of one structural engineer, made the support for the cathedral ceiling structurally inadequate. Defendant's structural engineer even stated that the single 2- by 10-inch ridge board was 750% overstressed prior to the initial repairs. The house, however, was subjected to the city's normal inspectional processes throughout construction, and a conditional certificate of occupancy was issued by the city in December 1980. The house had been placed on the market for sale in 1979.

On August 29, 1980, plaintiff executed a contract to purchase the house for $297,200. Title to this property at the time was held in a land trust at the trustee bank, and defendant, under the name of Shaf Home Builders, owned the beneficial interest and power of direction in the trust. At the time the contract was executed, it was anticipated that a closing would be held to transfer title on or about October 15, 1980. The contract called for a standard closing through which defendant would be paid the agreed-upon price and title would simultaneously be conveyed to plaintiff. The purchase was contingent on an inspection of the house by a qualified contractor representing plaintiff. Such an inspection was actually made, and no objections were expressed as a result of the inspection. The contract also contained the following warranty provision:


The Seller warrants that for a period of one year after the consummation of the attached agreement by delivery of deed, Seller will correct any defect due to faulty construction and or defective materials, except as otherwise excluded herein. Seller does not assume responsibility for any secondary or consequential damage caused by the defects."

The balance of the mortgage on the property as of October 15, 1980, was approximately $96,024.84. The mortgage arrangement between defendant and the mortgagee, Skokie Federal Savings and Loan (Skokie Federal), required defendant to pay $822 per month to the Skokie Federal as principal and interest. This represented an interest rate of 8 3/4% per annum. Prior to the scheduled closing on October 15, 1980, plaintiff and defendant agreed to a modification of their contract whereby plaintiff would pay defendant approximately $200,000 in cash on October 15, 1980, take possession of the house subject to the outstanding mortgage, and then pay defendant $822 per month. Defendant was to continue to pay the $822 per month to Skokie Federal and was required to deposit in escrow with the trustee bank the deed and a letter of direction to the trustee to convey the deed to plaintiff upon evidence of full payment of the mortgage. In addition, plaintiff was to pay defendant the remaining $95,279.55 on the mortgage on or before April 15, 1981, or he would be faced with an increase in the interest rate to 18% per annum.

Although the original contract terms called for delivery of a deed at closing, nothing was done to change the one-year limitation period from the date of the delivery of the deed in the express warranty included in the contract after the parties agreed that plaintiff would not have to make final payment until April 15, 1981.

Thereafter, plaintiff paid $200,000 in cash to defendant, and according to both defendant and Roger Rubin, plaintiff's attorney, the letter of direction was deposited by defendant with the trustee bank. The trustee bank, however, had no record in its file of receiving anything from defendant in 1980 relating to a deed or to a direction to convey to plaintiff.

Plaintiff took possession of the property after the closing and began extensive remodeling, paid the property taxes, utilities, and otherwise exercised all other rights of ownership. Defendant stated that he did not ask for any release from plaintiff at this initial closing date in 1980, and there was no testimony that defendant had ever sought any release prior to 1983. Defendant also did not know of any alleged construction defects.

Attached to the original contract was a list of additional items to be completed by defendant. The testimony below indicated that defendant was contacted about his failure to complete the listed items, that some listed items were never completed, that some items were completed by defendant, and that several other items were completed by tradesmen employed by plaintiff. Defendant concedes in his brief that the costs for the completion of the items on the list were properly awarded to plaintiff by the trial court and does not contest this on appeal.

As April 1981 approached, plaintiff contacted defendant and requested an additional extension of the remaining amount due on the outstanding mortgage at the interest rate of 8 3/4%. Although plaintiff could have paid the debt at any time, he preferred to continue the loan because of its very advantageous rate. Defendant agreed that plaintiff could defer making the payment until such time as Skokie Federal, whose mortgage contained a "due-on-sale" clause, learned that the property had been transferred.

In the summer of 1981, Richard Hoffmeyer, a carpenter hired by plaintiff to remodel the house, noticed significant deflections or sagging in the cathedral ceiling. He told plaintiff that this was a "dangerous condition" and that the ceiling needed to be supported. Hoffmeyer also told plaintiff that the garage ceiling, which supported part of the second floor, was also sagging. Hoffmeyer called defendant's office on numerous occasions to attempt to apprise him of these problems. He stated that defendant finally came to the house to speak with him, and he showed defendant the apparent problem with the structure over the garage. Hoffmeyer stated that defendant became angry and left abruptly, denying the existence of any problem over the garage and before Hoffmeyer could finish explaining the problem with the cathedral ceiling.

Hoffmeyer recommended to plaintiff that certain steps be taken in order to arrest the sagging he deemed unacceptable in both the cathedral ceiling and the garage ceiling, and plaintiff agreed to the work recommended by Hoffmeyer. Thereafter, Hoffmeyer performed the work recommended. He testified that the work merely stopped the sagging and did not repair the ceilings. In 1981, Hoffmeyer did not know of the basic structural causes of these problems, or, indeed, whether there were any underlying structural problems at all.

Plaintiff also claimed that in the summer of 1981, his wife observed certain problems with the operation of the central air-conditioning in the house in that it was warmer upstairs than downstairs. She called a local company specializing in residential air-conditioning replacement and repair, which attempted to solve the problem by adding Freon to the existing air-conditioning system. In 1982, however, she felt it was still too warm, and she had an engineer inspect the system, who determined that the problem was due to inadequate and improper duct work. To correct this, the engineer recommended the installation of an additional air conditioner in the attic, which was added along with an air cleaner. She never asked defendant to review the adequacy of the air-conditioning system, never told him that there was a problem with the air conditioning, never obtained any other estimates or opinions about the air-conditioning system, and never stated that the house was uninhabitable with the original system. None of defendant's employees had complained about the air-conditioning while the house was used as a model and office.

Additionally, during the winter of 1981-82, plaintiff's wife became concerned about drafts and cold in the bedrooms above the garage on the second floor. She contacted a company which did insulation work, and insulation was added to the garage area, eliminating the problem. Neither plaintiff nor his wife contacted defendant prior to adding the insulation and informed him of their complaints.

Plaintiff believed that there was still a problem with the area above the garage ceiling in the spring of 1982 because of the continuing leak and was concerned about the possible structural soundness of the house. He was also concerned with the responsibility and integrity of defendant as he had been making payments of $822 per month to defendant for well over a year, and paid substantial sums to redecorate, ...

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