Tag: judicial admission

Statute of Frauds Defeats Seller’s Countersuit for Damages After Property Sale Falls Through (IL 2d Dist.)

IMG_0275

When a deal to sell two industrial buildings collapsed, the would-be buyer sued to recover his $10K earnest money deposit. The seller, thinking the buyer was to blame for the aborted contract, countersued for $300K – the difference between the sale price plaintiff was supposed to pay and for what the seller ultimately sold the buildings to another buyer

Affirming dismissal of the seller’s counterclaim, the appeals court in Pease v. McPike, 2015 IL App (2d) 140881-U examines the contours of the Statute of Frauds (“SOF”) as it applies to commercial real estate transactions.

The plaintiff buyer never signed the contract that the sellers were trying to enforce.  Instead, the buyer signed a cancellation notice that post-dated the failed contract.  The seller argued that the buyer’s signature on the cancellation notice coupled with the allegations in his complaint were enough to satisfy the writing requirement (and that the buyer “signed” the earlier contract) of the SOF.

An Illinois real estate contract cannot be enforced under the SOF unless (1) there is a written memorandum or note on one or more documents; (2) the documents (if there are more than one) collectively contain a description of the property and terms of sale, including price and manner of payment, and (3) the memorandum or note is signed by the party to be charged (here, the plaintiff buyer). 

To satisfy the SOF, the writing itself doesn’t have to be a contract; it just has to be evidence that one (a contract) exists.  The writing doesn’t have to consist of a single page, but the writing signed by the party being sued must contain the essential terms of the contract and, where several writings exist, they must refer to one another or otherwise show a connection between them.  In a case of multiple writings, not all of them have to be signed. However, the writings that are signed must have a connection to the contract.  (¶ 41). 

A written cancellation of a contract can sometimes satisfy the SOF writing requirement and demonstrate to a court that a written contract does in fact exist.  However, the cancellation notice must explicitly refer to the contract and delineate the contract’s key terms. (¶ 48).

Here, there were two contracts – the initial purchase contract (which plaintiff did not sign) and the second “replacement contract” (which plaintiff did sign).  The Court found that the cancellation notice (cancelling the first contract) signed by the plaintiff wasn’t enough to bind him to the first contract (the contract the seller wanted to enforce).  On its face, that contract didn’t mention plaintiff and it wasn’t signed by him.

The court also rejected the seller’s judicial admission argument – that plaintiff’s complaint for the return of his earnest money was a judicial admission that he was party to the first contract.  A judicial admission is binding and conclusive on the party admitting a fact and withdraws that fact from the need to prove it at trial.  (¶ 53).

The court found that while the plaintiff’s complaint wasn’t the most artfully drafted one, it still alleged enough to demonstrate the plaintiff wasn’t a party to the first contract.  At most, plaintiff alleged (“admitted”) that he submitted a contingent offer to buy the buildings and that the offer was ultimately withdrawn.

Afterwords:

1/ Multiple writings, when read together, can satisfy SOF writing requirement;

2/ In a case (like here) where there is a patchwork of writings, the writing must explicitly refer to the underlying contract and show a connection to the contract to satisfy the SOF; and

3/ A complaint allegation can constitute a judicial admission but only if it is a definite, categorical statement.  If it’s vague or a hedging allegation, it likely won’t constitute a judicial admission.

 

 

 

 

The (Ruthless?) Illinois Credit Agreements Act

The Illinois Credit Agreements Act, 815 ILCS 160/1, et seq. (the “ICAA”) and its requirement that credit agreements be in writing and signed by both creditor and debtor, recently doomed a borrower’s counterclaim in a multi-million dollar loan default case.

The plaintiff in Contractors Lien Services, Inc. v. The Kedzie Project, LLC, 2015 IL App (1st) 130617-U, sued to foreclose on a commercial real estate loan and sued various guarantors along with the corporate borrower.

The borrower counterclaimed, arguing that a “side letter agreement” (“SLA”) signed by an officer of the lender established the parties’ intent for the lender to release additional funds to the borrower – funds the borrower claims would have gotten it current or “in balance” under the loan. The trial court disagreed and entered a $14M-plus judgment for the lender plaintiff.  The corporate borrower and two guarantors appealed.

Held: Affirmed

Rules/Reasoning:

The ICAA provides that a debtor cannot maintain an action based on a “credit agreement” unless it’s (1) in writing, (2) expresses an agreement or commitment to lend money or extend credit or (2)(a) delay or forbear repayment of money and (3) is signed by the creditor and the debtor. 815 ILCS 160/2

An ICAA “credit agreement” expansively denotes “an agreement or commitment by a creditor to lend money or extend credit or delay or forbear repayment of money not primarily for personal, family or household purposes, and not in connection with the issuance of credit cards.”  So, the ICAA does not apply to consumer transactions.  It only governs business/commercial arrangements.

The ICAA covers and excludes claims that are premised on unwritten agreements that are even tangentially related to a credit agreement as defined by the ICAA.

The borrower argued that the court should construe the SLA with the underlying loan as a single transaction: an Illinois contract axiom provides that where two instruments are signed as part of the same transaction, they will be read and considered together as one instrument.

The court rejected this single transaction argument.  It found the SLA was separate and unrelated to the loan documents.  The SLA post-dated the loan documents as evidenced by the fact that the  SLA specifically referenced the loan.  Conversely, the loan made no mention of the SLA (since it didn’t exist when the loan documents were signed).

All these facts militated against the court finding the SLA was part-and-parcel of the underlying loan transaction.

Another key factor in the court’s analysis was the defendants admitting that the SLA post-dated the loan (and so was a separate and distinct writing).  The court viewed this as a judicial admission – defined under the law as “deliberate, clear, unequivocal statement by a party about a concrete fact within that party’s knowledge.”

Here, since the SLA was not part of the loan modification, it stood or fell on whether it met the requirements of the ICAA.  It did not since it wasn’t signed by both lender and borrower.  The ICAA dictates that both creditor and debtor sign a credit agreement.  Here, since the debtor didn’t sign the SLA (it was only signed by lender’s agent), the SLA agreement was unenforceable.  As a consequence, the lender’s summary judgment on the counterclaim was proper.

Afterwords:

This case and others like it show that a commercially sophisticated borrower – be it a business entity or an individual – will likely be shown no mercy by a court.  This is especially true where there is no fraud, duress or unequal bargaining power underlying a given loan transaction.

Contractor’s Lien Services also illustrates in stark relief that ICAA statutory signature requirement will be enforced to the letter.  Since the borrower didn’t sign the SLA (which would have arguably cured the subject default), the borrower couldn’t rely on it and the lender’s multi-million dollar judgment was validated on appeal.