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09/25/95 ALAN H. ISRAEL v. NATIONAL CANADA

September 25, 1995

ALAN H. ISRAEL, ON BEHALF OF THE DUNDEE-LANDWEHR LIMITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP, PLAINTIFF-APPELLANT,
v.
NATIONAL CANADA CORPORATION, A DELAWARE CORPORATION, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County. Honorable Philip A. Fleischman, Presiding.

The Honorable Justice Braden delivered the opinion of the court: Campbell, P.j., concurs. Wolfson, J., concurs in part and dissents in part.

The opinion of the court was delivered by: Braden

The Honorable Justice BRADEN delivered the opinion of the court:

Plaintiff, Alan H. Israel (Israel), appeals from an August 22, 1990, order by the circuit court of Cook County, dismissing counts III and V of Israel's fourth amended complaint, as well as an August 7, 1992, order granting judgment in favor of defendant, National Canada Corporation (NCC).

We affirm.

Israel argues that the trial court erred in ruling that (1) Israel and the 3210 Partnership failed to establish, by a preponderance of the evidence, an agency relationship between Focus Real Estate Finance Company (Focus) and NCC; (2) NCC's delays in funding the 3210 loan did not constitute a material breach estopping NCC from rescinding the loan agreement; (3) a material adverse change in Israel's financial condition constituted a material breach of the loan agreement; (4) Israel experienced a material adverse change in his financial condition; (5) NCC could "mend its hold" in order to articulate an excuse for its refusal to perform under the loan agreement; (6) three letters allegedly related to the material adverse change in Israel's financial condition were inadmissible; and (7) Israel failed to plead a cause of action for intentional interference with contractual relations and common law fraud.

The record indicates that Israel was the general partner of the Dundee-Landwehr Partnership (3210 Partnership), an Illinois limited partnership. The 3210 Partnership was the beneficial owner of real estate and improvements located at the northwest corner of Landwehr and Dundee Roads, in Northbrook, Illinois (property). Legal title to the property was held by LaSalle National Bank, as Trustee (Land Trustee) under a trust agreement. During the summer of 1987, Israel submitted a loan application to Focus, on behalf of the 3210 Partnership, for financing to construct a commercial office building on the property. On August 4, 1988, Focus issued a mortgage commitment letter to Israel, approving a construction loan to the Land Trustee in the amount of $14,975,000 (Focus Commitment). Under the terms of the Focus Commitment, the construction loan was to be secured by a first mortgage lien against the property. In addition, the 3210 Partnership was to provide Focus with an independent appraisal of the value of the new construction prior to closing.

The Focus Commitment was conditioned upon Focus's ability to obtain an additional party to participate as a co-lender in funding the loan. On November 17, 1987, Focus was formally advised by National Bank of Canada via a mortgage commitment letter, that it and/or one of its affiliates, including NCC, would participate in the subject construction loan (NCC Commitment). The Focus and NCC Commitments required Israel to personally guarantee the completion of the proposed construction and the payment of interest due under the terms of the construction loan. Prior to closing, Israel was required to submit his personal financial statement to Focus and NCC for review. Focus and NCC subsequently executed a written agreement under which NCC was to participate as a co-lender for the subject construction loan (Participation Agreement). On or about December 17, 1987, the 3210 Partnership, Land Trustee, Focus and NCC executed a construction loan agreement (loan agreement).

On December 28, 1987, (1) the parties executed the documents necessary to open the subject loan; (2) Israel submitted the 3210 Partnership's first draw request under the loan agreement, in the total amount of $2,419,799; and (3) the full amount of the draw request was funded by Focus with minor adjustments.

Israel subsequently submitted five successive draw requests on behalf of the 3210 Partnership. The record indicates that each draw request complied with the conditions precedent to funding under the loan agreement. Under the loan agreement, Focus and NCC were required to disburse funds requested within five business days from receipt of a funding request by the 3210 Partnership. The record reveals that, with the exception of the first funding request, Focus and NCC failed to disburse funds within the five day period. Specifically, the full amount of the second draw request was funded eleven days after the funding request had been submitted, the full amount of the third draw request was funded twenty-eight days after the funding request had been submitted, the full amount of the fourth draw request was funded thirty-six days after the funding request had been submitted and the full amount of the fifth draw request twenty-eight days after the funding request had been submitted.

On July 20, 1988, Israel submitted the 3210 Partnership's sixth draw request to Focus and NCC under the construction loan agreement. The record indicates that this draw request also complied with the conditions precedent to funding. Focus and NCC refused to disburse funds as required under the terms of the loan agreement. The record indicates that on August 2, 1988, NCC and Focus advised Israel and the 3210 Partnership that certain construction bonds would be required before any portion of the sixth draw request would be disbursed. The record indicates that Israel supplied the construction bond as requested. The record indicates that Focus and NCC expressed their concerns with respect to the status of Israel's personal financial condition and, as such, continued to refuse to authorize further disbursements under the loan agreement.

On September 29, 1988, Focus served Israel and the 3210 Partnership with a written notice of default under the loan agreement. Focus cited the existence of seven instances of default, including a material change in Israel's financial condition.

The record indicates that Israel subsequently brought an action against NCC and its co-lender, Focus, on behalf of the 3210 Partnership, alleging claims of breach of the loan agreement, fraud, and intentional interference with contractual relations. The fraud and intentional interference claims were subsequently dismissed before trial for failure to state a cause of action. Before trial, the 3210 Partnership settled with Focus which was subsequently dismissed from the case. Israel proceeded to trial on the breach of contract claim against NCC.

The trial court entered judgment in favor of NCC and against Israel and the 3210 Partnership. The trial court found that (1) Israel and the 3210 Partnership failed to establish, by a preponderance of the evidence, an agency relationship between Focus and NCC; (2) Israel and the 3210 Partnership breached the loan agreement when Israel experienced a material adverse change in his financial condition; and (3) after Israel's breach, NCC had no duty or obligation to disburse funds under the loan agreement.

The first issue raised on appeal is whether Israel and the 3210 Partnership established, by a preponderance of the evidence, an agency relationship between Focus and NCC. Israel asserts that the trial court erroneously concluded that Focus was not NCC's agent with respect to the loan agreement. Specifically, Israel contends that the evidence, as well as the admissions of counsel, established an agency relationship between NCC and Focus with respect to the loan agreement.

The role of the reviewing court is to determine whether the trial court's findings are contrary to the manifest weight of the evidence. ( Ruggio v. Ditkowsky (1986), 147 Ill. App. 3d 638, 642, 498 N.E.2d 747, 750, 101 Ill. Dec. 423.) For a judgment to be against the manifest weight of the evidence, an opposite conclusion must be clearly evident. ( Wilmette Partners v. Hamel (1992), 230 Ill. App. 3d 248, 255, 594 N.E.2d 1177, 1184, 171 Ill. Dec. 657.) A reviewing court may not reverse a judgment merely because different conclusions could be drawn or because the reviewing court disagrees, so long as there is evidence to support the judgment. Wilmette Partners, 230 Ill. App. 3d at 255, 594 N.E.2d at 1184; Ruggio, 147 Ill. App. 3d at 642, 498 N.E.2d at 750.

Under Illinois law, agency is a consensual, fiduciary relationship between two legal entities whereby the principal has the right to control the manner and method in which work is performed by the agent and the agent has the right to effect legal relations of the principal. State Security Insurance Co. v. Frank B. Hall & Co. (1994), 258 Ill. App. 3d 588, 595, 630 N.E.2d 940, 945, 196 Ill. Dec. 775.

Here, Focus and NCC entered into a participation agreement for the subject construction loan. The record reveals that paragraph 6-A of ...


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