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Catholic Charities of the Archdiocese of Chicago v. Thorpe

December 12, 2000

THE CATHOLIC CHARITIES OF THE ARCHDIOCESE OF CHICAGO,
PLAINTIFF-APPELLEE,
V.
GEORGE THORPE,
DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Justice Gordon

Appeal from the Circuit Court of Cook County. Honorable Wayne Rhine, Judge Presiding.

Defendants George Thorpe and Terry Pearson (collectively "Buyer") appeal from the summary judgment of the circuit court of Cook County granted in favor of plaintiff the Catholic Charities of the Archdiocese of Chicago ("Seller") for the earnest money as liquidated damages on a contract to purchase real estate. On appeal, Buyer argues that no contract was formed because the payment of earnest money was a condition precedent to formation of the contract and was never performed; that the liquidated damages clause is unenforceable because the seller retained the option of recovering actual damages; that the liquidated damages clause is not enforceable if the seller (Catholic Charities) sustained no actual damages; and that the circuit court erred by refusing to permit Buyer to obtain discovery regarding the amount of Seller's actual damages. For the reasons discussed below, we reverse.

The essential facts of this case, as stated in Buyer's complaint, follow. On or about April 29, 1996, Buyer entered into a purported contract (the "contract") with Seller to purchase a parcel of real estate (the "property") located at 1300 South Wabash Avenue in the City of Chicago. The contract stated that Buyer "has paid $10,000 as earnest money to be increased to $25,000 upon acceptance" of the contract by Seller. Buyer paid the initial deposit of earnest money in the sum of $10,000 with a personal check, which was returned for insufficient funds and thereafter remained unpaid. The closing of the transaction was scheduled for June 6, 1996, and was extended to June 25, 1996, at Buyer's request. Seller appeared at the appointed time and place on June 25 for the closing; however, Buyer did not appear. Seller subsequently sold the property to a third party and the trial court refused to allow Buyer to discover the price at that sale. Seller subsequently filed suit for the earnest money as liquidated damages and the trial court granted summary judgment in its favor. This appeal followed.

We first note that we are reviewing an order granting summary judgment. "It is well settled that summary judgment should be granted only when the pleadings, depositions, affidavits and admissions show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Largosa v. Ford Motor Co., 303 Ill. App. 3d 751, 753, 708 N.E.2d 1219, 1221 (1999). "On a motion for summary judgment, the court must consider all the evidence before it strictly against the movant for summary judgment and liberally in favor of the non-movant." Largosa, 303 Ill. App. 3d at 753, 708 N.E.2d at 1221. "When reviewing a trial court's order granting a motion for summary judgment, the standard of review is de novo." Largosa, 303 Ill. App. 3d at 753, 708 N.E.2d at 1221.

Buyer first argues that Seller is not entitled to a judgment for the earnest money because no contract was ever formed between Buyer and Seller. In support, Buyer contends that the payment of the earnest money was a condition precedent to the formation of the contract and that the earnest money was never paid. In response, Seller argues that the payment of the earnest money was not a condition precedent to the formation of the contract, but was a condition precedent to Seller's performance. We find that the payment of the earnest money is not a condition precedent to the formation of the contract.

A "condition precedent is one that must be met before a contract becomes effective or that is to be performed by one party to an existing contract before the other party is obligated to perform." McAnelly v. Graves, 126 Ill. App. 3d 528, 532, 467 N.E.2d 377, 379 (1984). "Whether an act is necessary to formation of the contract or to the performance of an obligation under the contract depends on the facts of the case." McAnelly, 126 Ill. App. 3d at 532, 467 N.E.2d at 379. If "a condition goes solely to the obligation of the parties to perform, existence of such a condition does not prevent the formation of a valid contract." McAnelly, 126 Ill. App. 3d at 532, 467 N.E.2d at 379.

Thus, whether a contract exists herein turns on whether the payment of the earnest money is a condition precedent to the formation of the contract. As the District of Columbia Court of Appeals has observed, the resolution of this question turns on the intent of the parties.

"The issue really is not whether a 'condition' must occur before a contract comes into existence but whether the parties have mutually assented or agreed to make it a binding contract. If there is such mutual assent, agreed on conditions clearly affect only the duty to perform. If no mutual agreement is reached, there is no contract. The 'condition precedent' to the formation or existence of a contract is thus the mutual assent or agreement of the parties." Edmund J. Flynn Co. v. Schlosser, 265 A.2d 599, 601 (1970).

The intent of the parties to create a condition precedent to the formation of a contract is a question of law where the language in the instrument is unambiguous. IK Corp. v. One Financial Place Partnership, 200 Ill. App. 3d 802, 810, 558 N.E.2d 161, 166-67 (1990).

The language in the instrument at issue is unambiguous and does not express an intent by the parties to make payment of the earnest money a condition precedent to the formation of a contract. Hudson v. Wakefield, 645 S.W.2d 427, 430 (Tx. 1983) (payment of earnest money not a condition precedent to the formation of the contract). The instrument states that "[p]urchaser has paid $10,000 (to be increased to $25,000 upon acceptance of contract by seller) as earnest money to be applied on the purchase price." The additional $15,000 in earnest money (which brings the total to $25,000) is clearly a promise which must be performed once the contract is agreed to. Nor does this language specifically require that the initial $10,000 earnest money be paid as a condition to the contract being formed, but merely purports to recite a history of what has already taken place.

All the Illinois cases which our research has disclosed which found a condition precedent to the formation of a contract contain express language on the face of the contract to support that construction. For example, in McAnelly v. Graves, 126 Ill. App. 3d 528, 531, 467 N.E.2d 377, 378 (1984), the court found that a provision in a lease stating that "it was 'subject to' the lessee's obtaining all necessary mining permits and stated that, if such permits were not issued, the lease was to be of no force and effect and the entire advance royalty payment was to be refunded to the lessee" was not a condition precedent to the formation of the contract. The court reasoned that "the language and circumstances of the lease in question belie the *** contention that formation of the contract was dependent on the plaintiff's obtaining the *** permits" because the "lease itself did not require the permits to be issued before it became effective." McAnelly, 126 Ill. App. 3d at 533, 467 N.E.2d at 379. Rather, the language indicated that the parties intended the issuance of the permits to be a condition precedent to performance. The court then distinguished the case of Albrecht v. North American Life Assurance Co., 27 Ill. App. 3d 839, 840, 327 N.E.2d 317, 318 (1975), where a contract provision stating that employee "shall be insured" under an insurance policy after completing an application for insurance created condition precedent to formation of a contract. McAnelly, 126 Ill. App. 3d at 533, 467 N.E.2d at 379.

We concur with the analysis in McAnelly and find Albrecht to be similarly distinguishable. In Albrecht the instrument in question stated on its face that an "employee shall become insured hereunder ... on the date of completion of a written application for insurance." This language clearly states that no contract of insurance covers the employee until after an application is completed. The completion of the application is thus clearly a condition precedent to the formation of a contract of insurance covering the employee. (Cf. IK Corp., 200 Ill. App. 3d at 810-11, 558 N.E.2d at 167: which indicates that the term "subject to" may denote a condition precedent depending on the surrounding context, but agrees with the underlying principle that to be construed as a condition precedent the intent to do so must be clear from the fact of the document).

Thus as is manifest from each of the forgoing cases a condition precedent to the formation of a contract will not be found unless the intent to create such a condition is apparent from the face of the agreement. In the case at bar, the language of the contract does not purport to formulate the payment of earnest money as a condition precedent to the formation of the contract and therefore no such intent should be read into it.

Nor need we determine whether the language in this contract renders the payment of the earnest money a condition precedent to performance as opposed to being an independent promise, (see generally 3A Corbin on Contracts §633 (1960)) since neither of these constructions would be of any aid to Buyer. If indeed the provision is a condition precedent to performance, the contract would have been formed in any event and would require the Buyer to deposit the earnest money, which he did not do. 3A Corbin on Contracts §633 at 27-8 (1960) ("a contract can be so made as to ...


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